DBRS Comments on Superior Plus’s Announcement Regarding the Sale of Its Specialty Chemicals Business

DBRS Limited (DBRS) notes that on June 10, 2019, Superior Plus LP (Superior Plus or the Company) announced that it was considering the sale of its Specialty Chemicals business. The Company also announced that the proceeds from the sale would be primarily used for debt repayment and acceleration of growth through acquisitions in the U.S. propane distribution business but also possibly for share repurchases while maintaining its dividend policy in place.

Following completion of the Specialty Chemicals business sale and the corresponding loss in earnings and cash flows, DBRS’s understanding is that the credit profile on a long-term basis would be mostly unchanged owing to the expectation of significant debt repayment. The Specialty Chemicals business generated about $139 million in EBITDA in the last 12 months ended Q1 2019. DBRS also expects that their overall financial policy will be maintained, which consists of pursuing acquisitions that may temporarily put pressure on leverage and the ratings, followed by a period of integration and deleveraging. The loss of the Specialty Chemicals business’s contribution to the overall business risk profile of Superior Plus is seen as negative because its economic drivers are generally different versus those underlying the Company’s energy distribution business. Going forward, if the transaction closes, the Company’s overall business risk profile would be less diversified while leverage metrics and their financial policy would be unchanged, which is viewed as credit negative. The financial policy that Superior Plus has been adhering to is seen as a constraint to the ratings, and without a noticeable and permanent change in that regard, any weakening in the Company’s business risk drivers could have a direct negative impact on the Company’s credit rating. Nevertheless, DBRS acknowledges that Superior Plus has been successful in its external growth strategy, mostly in the U.S. retail energy distribution area, by acquiring small and larger propane distribution businesses, which, to some extent, represent a level of diversification when compared with its Canadian activities, which are mostly for wholesale, commercial and industrial end-use applications.

Going forward, DBRS will review the progress of the sale, and unless material and noticeable changes to the business risk and financial risk profiles emerge, DBRS would likely take a negative rating action on Superior Plus’s ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Industrial Products Industry and Rating Companies in the Services Industry, which can be found on dbrs.com under Methodologies & Criteria.

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