DBRS Morningstar notes that on June 8, 2020, Superior Plus LP (Superior Plus or the Company; rated BB (high) with a Stable trend by DBRS Morningstar) announced that Brookfield Asset Management Inc. (Brookfield; rated A (low) with a Stable trend by DBRS Morningstar) will invest $350 million into Superior Plus in the form of preferred stocks.

Assuming that the proceeds from the investment will be predominantly used to repay drawings under the Company's credit facility, DBRS Morningstar views the announcement and expected use of proceeds as credit positive because, on a pro forma basis, liquidity and leverage will both significantly improve. The transaction is expected to close by the end of July 2020.

At March 31, 2020, Superior Plus had $487 million drawn under its revolving credit facility and leverage as expressed by debt-to-EBITDA stood at around 4.0 times (x). Pro forma after the Brookfield investment and application of proceeds toward repayment of the credit facility, leverage will stand at approximately 3.2x which is well within DBRS Morningstar's expected range for Superior Plus' current rating. DBRS Morningstar, however, expects Superior Plus to continue executing its tuck-in acquisition strategy. To fund this, the Company will most likely use credit facility drawings that will cause leverage to increase again and be at around 3.5x at the end of 2020, which DBRS Morningstar still considers commensurate for the current rating. In addition to reducing leverage and consistent with the Company's tuck-in acquisition strategy, Brookfield's investment will allow Superior Plus to take advantage of the current environment in which acquisition opportunities may become more attractive.

The effect of warmer weather in Q1 2020 negatively affected the Energy Distribution business, while the Specialty Chemicals business was also affected by lower volumes and prices for chlor-alkali, among other factors. So far, the Coronavirus Disease (COVID-19) has had a limited impact on Superior Plus' operations, with the Company's products and services being considered essential by all provinces, states, and territories where it operates. Although DBRS Morningstar does not expect demand for residential propane to be affected in a significant way, Superior Plus is seeing reduced levels of activity for its commercial and industrial customers, in particular those considered nonessential as well as in the oil and gas industry, which will lead to lower EBITDA and cash flows compared with prior expectations. Superior Plus has been taking actions to reduce cost and capital expenditures which, in DBRS Morningstar's view, will help moderate the overall negative impact of the coronavirus pandemic on the Company's operations.

DBRS Morningstar expects the Company to be consistent with past practices and to take further and necessary actions, if needed, to keep leverage commensurate with the current rating. DBRS Morningstar does not expect any rating actions at this point; however, DBRS Morningstar could consider a negative rating action if any of the following factors cause metrics to deteriorate for an extended period of time beyond what DBRS Morningstar considers consistent with the ratings: the effect of the coronavirus pandemic persisting much longer than currently anticipated, changes in financial policy, significant debt-financed acquisitions (especially during a period of notable market weakness), negative free cash flow, or difficulties and delays in integrating newly acquired businesses.

Notes:

All figures are in Canadian dollars unless otherwise noted.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Limited

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Toronto, ON M5H 3M7 Canada

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DBRS Morningstar Comments on Superior Plus' Announcement Regarding Brookfield's Investment

Jun 08, 2020Services

Issuers

Superior Plus LP

Contacts

Contact Avatar	Amaury Baudouin

Vice President, Industrials & Natural Resources - Global Corporates

+1 416 597 7429

amaury.baudouin@dbrsmorningstar.com

Contact Avatar	Tim O'Brien

Senior Vice President Industrials and Natural Resources - Global Corporates

+1 416 597 7364

timothy.obrien@dbrsmorningstar.com

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