UGI Utilities outlook revised to stable by Fitch, ratings affirmed

Fitch Ratings has affirmed UGI Utilities, Inc.’s Long-Term Issuer Default Rating at ’A-’ and revised its outlook to stable from negative, citing improved results at parent UGI Corporation and management’s commitment to stabilize AmeriGas Partners LP without further financial support. The rating reflects UGI Utilities’ low-risk regulated operations, solid customer growth, and a constructive Pennsylvania regulatory environment, which supports its $1.6 billion capital expenditure plan (2025-2027) and a recently settled rate increase. This positions UGI Utilities with a stronger credit profile compared to peers, further bolstered by supportive legislation like Pennsylvania Senate Bill 311.

Analysis

Fitch Ratings' affirmation of UGI Utilities' 'A-' rating and, more significantly, the revision of its outlook to stable from negative, marks a pivotal improvement in the company's credit profile. This change is primarily driven by the stabilization of parent company UGI Corporation and the cessation of financial support to affiliate AmeriGas Partners, which removes a key overhang. The rating is underpinned by UGI Utilities' low-risk, regulated natural gas and electric operations, which benefit from a constructive regulatory framework in Pennsylvania. The company's significant $1.6 billion capital expenditure plan for 2025-2027 appears manageable, with Fitch projecting Funds From Operations (FFO) leverage to average approximately 4.3x, a level consistent with its current rating. Near-term revenue visibility is enhanced by a recent settlement for a $69.5 million annual rate increase, while long-term prospects are supported by supportive legislation like Senate Bill 311. Furthermore, Fitch's assessment indicates a stronger credit profile and more favorable financial metrics for UGI Utilities compared to peers Southwest Gas and DTE Gas over the next three years.

Key Decisions for Investors

• Investors should view the Fitch outlook revision to stable as a significant de-risking event, driven by the stabilization of its parent UGI Corp and affiliate AmeriGas, which shores up the utility's credit quality.
• Consider the visibility of future earnings growth, which is supported by the recently settled $69.5 million rate increase and a defined $1.6 billion capital expenditure plan through 2027.
• Evaluate UGI Utilities on a relative basis against peers Southwest Gas and DTE Gas, as its stronger credit profile and supportive regulatory environment in Pennsylvania may warrant a premium or position it favorably in a long/short strategy.