Fitch Downgrades AmeriGas Partners to 'BB'; Outlook Remains Negative

Fitch has downgraded the ratings of AmeriGas Parnters, LP (APU) and its fully guaranteed financing co-borrowers, AmeriGas Finance Corp., and AP Eagle Finance Corp. The Rating Outlook is Negative. A full list of the affected ratings is included at the end of this release.

The downgrades reflect the significant pressure on results from negative impact of particularly warm weather, compounded by the increased leverage from the recent Heritage acquisition. The volatility in EBITDA as a result of the warm weather is beyond Fitch's original stress expectations. Considering this increased volatility in EBITDA, Fitch views industry and business risk for the retail propane sector as greater than previous expectations. While the equity offering and the associated debt reduction are positive from a credit perspective, leverage metrics will continue to be elevated due to weak operating performance.

The Negative Outlook reflects concerns about APU's ability to improve leverage in this environment and maintain sufficient room under bank covenants. Execution risk associated with the operational integration and achievement of cost synergies also continue to be considered in the Negative Outlook.

Based on the results of the 2012 heating season, Fitch projects that on a pro forma basis Debt to EBITDA will be close to 5 times (x) for 2012. Fitch projects that improvement in Debt to EBITDA to around 4x in 2013 and thereafter will require a return to more normal weather, maintenance of margins, and achievement of baseline synergies. Fitch would consider returning the Outlook to Stable should these measures be reached. Alternatively, failure to reduce leverage to around 4x could result in a downgrade, most likely limited to one notch.

KEY RATING DRIVERS

Operating History and Scale: APU's ratings reflect its position as the largest retail propane distributor in the U.S., with broad geographic reach. Historically APU has been able to maintain and grow unit margins under various operating conditions. A key driver going forward will be the ability of the combined entity to maintain that performance.

Sales Volatility: APU's financial performance remains sensitive to weather and demand destruction due to customer conservation, fuels switching and general economic conditions. The decline in new home construction due to the recession as well as the relatively high price of propane has exacerbated volume sales declines in recent years throughout the sector. These factors continue to pressure profit margins.

Consistent Historical Financial Performance: Prior to this heating season and the levering Heritage acquisition, APU had managed to sustain its financial profile by maintaining margins on retail gallons sold. However, significantly warmer than normal weather is having a greater than anticipated negative impact on results for fiscal 2012 and will further pressure financial metrics.

Structural Subordination: APU's ratings also consider the structural subordination of its debt obligations to revolver borrowings at AmeriGas Propane LP, its operating limited partnership subsidiary and to the assumed secured debt obligations of Heritage Operating, LP. Heritage secured debt is limited and Fitch expects that over time it will be replaced at the APU level.

Liquidity and Capital Structure: In conjunction with the Heritage acquisition, APU amended its bank revolving credit facility increasing the commitment amount to $525 million and extending the maturity to 2016. Fitch expects that this facility should be sufficient to meet the liquidity needs of the combined company given seasonal requirements.

As part of the amendment, the financial covenants were also revised to provide some additional flexibility. Notably, the consolidated MLP (AmeriGas Partners, L.P.) total leverage (debt to EBITDA) ratio was increased to 5.25x through June 30, 2012 and the EBITDA calculation now allows for the inclusion of projected synergies and excludes transaction costs. Nevertheless, as noted above, Fitch expects APU will have little room under the 5x covenant for fiscal yearend September 30.

Positively, APU does not have significant debt maturities until 2019.

Fitch has downgraded the following ratings:

AmeriGas Partners, L.P./Amerigas Finance Corp.

--Issuer Default Rating (IDR) to 'BB' from 'BB+';

--Senior unsecured to 'BB' from 'BB+';

AmeriGas Partners, L.P./AP Eagle Finance Corp.

--IDR to 'BB' from 'BB+';

--Senior unsecured to 'BB' from 'BB+'.

The Rating Outlook is Negative.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Recovery Ratings and Notching for Utilities' (Aug. 12, 2011);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648449

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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