Sep. 30, 2009 (Business Wire) -- Fitch Ratings has affirmed its ratings on UGI Utilities (UGIU). Approximately $750 million of debt is affected by today's rating actions. UGIU's ratings are affirmed as follows:
--Long-term Issuer Default Rating (IDR) at 'A-';
--Senior unsecured rating at 'A'.
The Rating Outlook is Stable.
UGIU's ratings and Stable Outlook reflect the predictable cash flows of its regulated gas and electric operations, effective recovery mechanisms, and strong credit metrics. The ratings also incorporate the impact of UGIU's recently completed acquisition of Central Penn Gas (CPG), as well as, the recent rate case settlements with the Pennsylvania Public Utility Commission (PA PUC) at both CPG and UGI Penn Natural Gas (PNG).
UGIU closed its acquisition of CPG on Oct. 1, 2008. The acquisition provides UGIU a more geographically diverse customer base within PA and makes UGIU the largest natural gas utility in the state. With the acquisition of Southern Union's Penn Natural Gas business in 2006, UGIU showed itself to be particularly adept at integrating the acquired operations and successfully navigating the regulatory process. Fitch believes that this experience should give UGIU some benefit in its acquisition and integration of the PPL businesses.
In January 2009, PNG and CPG filed separate rate requests with the PA PUC to increase base rates by $38 million/annually for PNG and $19 million/annually for CPG. In August 2009, PNG and CPG announced approved settlements with the PA PUC. The PNG settlement agreement provides for rates designed to produce $19.75 million in additional annual base rates. The CPG settlement agreement provides for rates designed to produce $10 million in additional annual base rates. The new rates became effective on Aug. 28, 2009.
The new rates should help UGIU continue to maintain fairly stable, strong credit metrics. For fiscal 2009, Fitch anticipates debt-to-funds from operations (FFO) of 4.4 times (x) and FFO plus interest-to-interest coverage will approximate 4.6x. For fiscal 2010, Fitch expects debt to FFO of 3.6x and FFO plus interest-to-interest coverage of 4.4x. UGIU continues to maintain adequate liquidity in the form of a $350 million Revolving Credit Agreement which expires in August 2011. At June 30, 2009 as mentioned there was $110 million outstanding under this Revolving Credit Agreement. UGIU has a manageable near-term maturity schedule with no near-term maturities until 2012, - 2009: $0; 2010: $0; 2011: $0; 2012: $40 million; 2013: $133 million. Capital expenditures are expected to be relatively low and in line with the company's historical maintenance capital needs.
Fitch notes that UGIU's ratings primarily reflect its standalone credit profile. UGIU's parent company UGI Corp. (UGI) also owns several higher business risk subsidiaries, specifically propane and energy marketing. Although these affiliates are engaged in higher risk businesses UGI has no holding company debt and receives distributions well in excess of its common dividend obligations. In an extreme scenario, where dividends from an affiliate company were severely impaired and/or parent cash support was required, additional demands for distributions from UGIU could result, potentially pressuring UGIU's financial profile. UGIU is also dependent on UGI for equity market access.
Additional credit concerns include the utilities inherent sensitivity to prevailing weather conditions and volatile commodity prices that have the potential to induce customer conservation and increase working capital needs.
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