MOODY'S DOWNGRADES THE WILLIAMS COMPANIES, INC.'S RATINGS (TO B3 SR. IMP.); OUTLOOK NEGATIVE
New York, November 22, 2002 -- Moody's Investors Service downgraded the ratings of The Williams Companies, Inc. (WMB, the parent) and its subsidiaries. WMB’s senior implied rating has been lowered from Ba3 to B3; its senior unsecured rating, from B1 to Caa1. WMB’s pipeline subsidiaries’ senior unsecured debt ratings have been downgraded from Ba2 to B3. The rating outlook is negative.
Moody’s notes that WMB’s $700 million revolver due July 25, 2005 and Transco Energy Company’s $27 million of 9.875% debentures due 2020 were recast from an unsecured to a secured basis and, consequently, their ratings have been recalibrated from B1 to B3. In addition, Williams Gas Pipeline Central’s senior unsecured rating has been downgraded from Ba2 to B3 and withdrawn following its sale to Southern Star Central Corp. The withdrawal is due to the assumption of Central’s $175 million of debt by an unrated buyer and the expectation that Central will continue not to make public filings of its financial statements by which Moody’s can monitor its credit.
These rating actions reflect concerns about the company’s ability to generate sufficient cash flow from operations to meet its ongoing obligations absent asset sales. Poor market conditions are likely to hamper near-term improvement in WMB’s cash flow, and the company will face formidable challenges in reaching its targets of $1.7 billion of cash flow from operations (before interest expense) and $700 to $800 million of capital expenditures in 2003. These targets compare with operating cash flow deficit of $1.3 billion (after interest expense) and capital expenditures and investments of $1.7 billion for the nine months ended September 30, 2002. While there is a measure of durability in the businesses that the company recently designated as core to its future operations (pipelines, exploration and production, midstream, and the investment in Williams Energy Partners, L.P.), its overall results remain depressed and well below our previous expectations, particularly in its energy marketing and trading, but also in its petroleum and international businesses.
WMB continues to rely on asset sales proceeds to meet its large cash deficit, and plans to sell at least $1 billion more than what has already been closed or announced. It is uncertain whether such asset sales will be timed and generate adequate proceeds to meet its ongoing debt repayments and capital needs. Moody’s notes that the major assets that WMB is in the process of selling include its trading book and refining assets. Reliance on asset sales is risky, given the current unfavorable industry environment and a glut of assets being sold by other companies.
WMB’s financial flexibility is being squeezed by much higher interest costs, acceleration of mandatory debt repayments, and tightened covenants under various of its new and amended bank and debt agreements. The high interest rates under these agreements, in particular the $900 million loan of its subsidiary Williams Production RMT Company (RMT), caused the interest accrued in the first nine months ended September 30 to increase to $849 million (a 67% increase over the same period in the prior year), well exceeding the operating income of $155 million for the period.
WMB’s debt covenants impose onerous requirements that reduce credit availability and could accelerate debt repayment. The amended agreements require the company to use proceeds from asset sales to ratably reduce outstanding debt under these agreements and commitment under WMB’s $700 million revolver. Under this requirement, the commitment under the revolver is soon expected to be reduced to $400 million. The RMT loan further requires that WMB maintain cash and unused borrowing capacity under its credit facilities at certain thresholds. If WMB defaults on this liquidity requirement, the company is required to satisfy its obligations through the sale of RMT.
Moody’s is uncertain whether WMB will continue to meet its various debt covenants. Its ability to do so will depend on its ability to continue to sell its hard assets as well as all or a significant portion of its trading book, or to implement some other alternative to stanch the cash drain from its energy marketing and trading business.
The rating outlook is negative, reflecting the considerable execution risk that WMB faces in the near-term. Further rating action may be taken if 1) WMB is unable to meet its debt repayment obligations ($4 billion scheduled through first quarter of 2004, the largest single maturity being the $1 billion repayment of the RMT loan in July 2003); 2) WMB is unable to maintain sufficient liquidity resources to accommodate its needs and to comply with its debt covenants; 3) WMB does not sell sufficient assets to meet its cash shortfall; 4) WMB fails to improve its cash flow from operations and to reduce its capital expenditures as targeted; and 5) significant legal and regulatory contingencies materialize.
WMB's ratings were lowered as follows:
The Williams Companies, Inc. – Senior implied rating from Ba3 to B3, senior unsecured issuer rating from B1 to Caa1, revolving credit facility from B1 senior unsecured to B3 senior secured, senior unsecured debt from B1 to Caa1, senior unsecured/subordinated/preferred shelf from (P)B1/(P)B2/(P)B3 to (P)Caa1/(P)Caa3/(P)Ca;
Williams Capital I – Trust preferred stock from B2 to Caa3, trust preferred shelf from (P)B2 to (P)Caa3;
Williams Capital II – Trust preferred shelf from (P)B2 to (P)Caa3;
MAPCO Inc. - Senior unsecured debt from B1 to Caa1;
Northwest Pipeline Corporation - Senior unsecured debt from Ba2 to B3, senior unsecured shelf from (P)Ba2 to (P)B3;
Texas Gas Transmission Corporation - Senior unsecured debt from Ba2 to B3, senior unsecured shelf from (P)Ba2 to (P)B3;
Transco Energy Company – Debt from B1 senior unsecured to B3 senior secured;
Transcontinental Gas Pipe Line Corporation - Senior unsecured debt from Ba2 to B3, senior unsecured shelf from (P)Ba2 to (P)B3;
Williams Gas Pipeline Central – Senior unsecured debt from Ba2 to B3 and withdrawn;
Barrett Resources Corporation - Senior unsecured debt and issuer rating from B1 to Caa1.
Headquartered in Tulsa, Oklahoma, the Williams Companies, Inc. is a diversified energy services company.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com
under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.