DBRS Confirms Superior Plus Income Fund at STA-3 (middle)

Dominion Bond Rating Service (“DBRS”) has confirmed the stability rating of Superior Plus Income Fund (the “Fund”) at STA-3 (middle).

The Fund continues to benefit from diversified sources of cash flow, low maintenance capex requirements, and its track record of completing accretive acquisitions. However, growth in cash available for distribution per unit has been hampered by significant unit dilution over the past two years. Future growth in distributable cash flow (DCF) is likely to come from a combination of potential acquisitions and internal growth opportunities, although partially offset on a per unit basis by further conversion of convertible subordinated debentures into units and exercise of purchase warrants.

Acquisitions in the past three years have improved the Fund’s business risk profile through diversification. In the 12 months ended June 30, 2005, Superior derived its operating DCF from the following segments: (1) Superior Propane (46%; 100% prior to December 2002); (2) ERCO Worldwide (41%); (3) Winroc Corporation (“Winroc”) (11%); and (4) Superior Energy Management (2%). Each segment generates stable cash flow and requires very low maintenance capital expenditures (8% of cash flow), leaving most of the cash flow available for distribution to unitholders after meeting debt principal and interest obligations.

The Fund’s financial profile deteriorated following the mid-June 2004 Winroc acquisition (Cdn$104.2 million), which, along with subsequent acquisitions (totalling Cdn$81.7 million in the 12 months ended June 30, 2005), were initially funded with credit facilities. In June 2005, the Fund used net proceeds of Cdn$167.5 million from the issuance of convertible subordinated debentures to refinance the acquisition debt. Consequently, its financial profile improved in the first half of 2005. DBRS expects that the Fund will continue to finance transactions with initial debt funding that would be replaced with permanent debt and equity over time.

ERCO Worldwide is constructing a new sodium chlorate plant in Chile at an estimated cost of Cdn$65 million with an expected start-up in mid-2006. Remaining construction costs of Cdn$56 million are to be financed from Superior’s credit facilities. At June 30, 2005, 3.0 million purchase warrants remained outstanding with an exercise price of Cdn$20 per unit (exercisable until May 7, 2008), likely adding Cdn$60 million of equity capital over the medium term. However, the rise in cash available for distribution is likely to be offset by conversion of convertible subordinated debentures into units.