A must-know overview of AmeriGas Partners’ business and structure

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Company overview

AmeriGas Partners LP (APU) is a master limited partnership and the nation’s largest retail propane marketer (based on the volume of propane gallons distributed annually), serving customers in all 50 states from approximately 2,500 distribution locations.

APU sells primarily to residential, commercial or industrial, motor fuel, agricultural, and wholesale customers. Retail volumes APU sold in fiscal 2013 were 1.2 billion gallons and wholesale volumes were 22 million gallons. Commercial or industrial sales include the AmeriGas cylinder exchange program (or ACE). The ACE program enables consumers to purchase propane cylinders or exchange their empty propane cylinders at various retail locations, such as home centers, gas stations, mass merchandisers, and grocery stores. The company operates from 2,500 retail locations and 47,000 ACE distribution points and has an internal fleet of over 360 transport trucks, over 350 rail cars, and 28 propane terminals.

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APU has a market cap of ~$4 billion and an enterprise value (or EV) of ~$6 billion (as of April 2, 2014) and is currently trading at an EV/2014E EBITDA of ~10x. Adjusted EBITDA (earnings before interest, tax depreciation, and amortization) for the three months ended December 31, 2013, was $230 million. Last-12-month (or LTM) EBITDA was $655 million, and LTM revenue was $3 billion as of April 2, 2014.

Organizational structure

The general partner for APU is AmeriGas Propane Inc., which is an indirect wholly owned subsidiary of United Gas Improvement Corporation (UGI). AmeriGas Propane Inc. holds a 1% general partner interest in AmeriGas Partners and an ~18 % limited partner interest in APU. Petrolane Incorporated, which was a predecessor company of APU, owns ~7% limited partner interest in APU. The General Partner has an approximate 26% effective ownership interest in the partnership.

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On January 12, 2012, APU completed the acquisition of its subsidiaries of Energy Transfer Partners LP (ETP) that operated ETP’s propane distribution business (Heritage Propane, which had operations in 41 states and was the third-largest retail propane distributor in the United States in 2011). ETP has an effective 24% limited partner interest in the partnership. The remaining common units (50%) are publicly held.

AmeriGas Finance Corp., AP Eagle Finance Corp. and AmeriGas Finance LLC are 100%-owned finance subsidiaries of AmeriGas Partners. Their sole purpose is to serve as issuers or co-obligors for debt securities issued or guaranteed by AmeriGas Partners.

APU principally sells propane to large industrial end users and other propane distributors. It usually makes retail deliveries of propane to customers by means of bobtail and rack trucks. The company pumps propane from the bobtail trucks, which generally hold 2,400 to 3,000 gallons of propane, into a stationary storage tank on the customer’s premises. APU owns most of these storage tanks and leases them to its customers. The capacity of these tanks ranges from approximately 120 gallons to approximately 1,200 gallons.

Other propane companies operating in this space include Suburban Propane (SPH), Ferrellgas Partners (FGP), and NGL Energy Partners (NGL). They and AmeriGas are part of the Yorkville High Income MLP ETF (YMLP), an ETF that tracks select MLPs.

To learn more about key issues facing the propane distribution industry, read on to the following parts of this series.

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