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24 Jul 2002
MOODY'S DOWNGRADES THE WILLIAMS COMPANIES' RATINGS (TO B1 SR. UNS.); RATINGS UNDER REVIEW FOR POSSIBLE FURTHER DOWNGRADE
Approximately $18.0 Billion of Debt Securities Affected.
New York, July 24, 2002 -- Moody's Investors Service downgraded the ratings of The Williams Companies,
Inc. (WMB, the parent) and its subsidiaries. WMB's
senior unsecured rating has been lowered to B1 from Baa3. Moody's
also assigned to WMB a Ba3 senior implied rating. WMB's pipeline
subsidiaries' senior unsecured debt ratings have been downgraded to Ba2
from Baa2. WMB's ratings are placed under review for possible downgrade.
These rating actions reflect concerns about the sufficiency of WMB's operating
cash flow in relation to its debt as well as the adequacy of the company's
liquidity in the coming quarters. The company's operating cash
flow has been below expectations so far this year. Energy marketing
and trading (EM&T)'s operating cash flow fell short of expectations
in the first half of the year, though the pipeline and energy services
segments were relatively steady. The weaker-than-expected
operating cash flows and looming debt repayments have put a strain on
the company's liquidity resources. To address these concerns,
WMB is seeking to renew its bank credit facilities and Moody's expects
that these facilities will likely be recast on a secured basis rather
than on an unsecured basis as was previously planned.
The downgrade of the parent company's senior unsecured ratings to B1 reflects
the effective subordination of the senior unsecured bonds to the secured
bank lines that are being negotiated. We expect that the secured
bank debt will be amply collateralized by WMB's hard non-pipeline
assets. Non-pipeline subsidiaries, which do not have
significant debt of their own, are expected to provide upstream
guarantees on the parent's secured facility. The Ba2 senior unsecured
ratings for the pipeline subsidiaries reflect their structural seniority
to the parent debt but also their lack of regulatory ringfencing.
The current rating reflects the potential that WMB can stabilize its financial
position by successfully recasting and increasing the amount of its committed
credit facilities and by selling assets. The company has a good
base of unencumbered assets which can serve as collateral for the credit
facilites and the potential, through its non-trading businesses,
to produce a stable level of cash flow, although that level is currently
insuffient relative to the company's debt.
The ratings remain under review for possible further downgrade,
reflecting the considerable execution risk that WMB faces in the near-term.
Further rating action may be considered if 1) WMB is unable to renew its
bank facility in a timely manner and of an appropriate size to comfortably
accommodate short- and intermediate-term needs; 2)
WMB does not make sufficient progress on its $3 billion debt reduction
program from asset sales; and 3) cash flow from operations fails
to improve. The company is likely to have to post in the range
of $600 million in trading margins, must repay $185
million of bonds with rating triggers, and has $1.5
billion of debt due the second half of 2002. In addition,
the review will focus on the ongoing legal and regulatory contingencies
Moody's believes the company will have to rely on asset sales in order
to meet its debt reduction target by year-end. Moody's will
assess the assets sold, the consideration received, and the
timing of those sales. We will also assess the effect of asset
sales on the company's ongoing operating cash flow.
WMB's latest iteration of its near-term cash outlook is significantly
weaker than was expected just two months ago. The increased use
of cash for margining and financial assurances for its trading and marketing
business has lowered its cash balances.
Moody's said that WMB is negotiating $1.8 billion of new
secured bank lines. If these lines are obtained, together
with an existing $700 million term facility, WMB would have
$2.5 billion of alternate liquidity that, combined
with modest success in asset sales, should cover short- and
intermediate-term liquidity needs.
The rating actions taken are as follows:
The Williams Companies, Inc. - Senior implied rating
of Ba3, senior unsecured issuer rating of B1, commercial paper
from P-3 to NP, senior unsecured debt from Baa3 to B1,
senior unsecured/subordinated/preferred shelf from (P)Baa3/(P)Ba1/(P)Ba2
to (P)B1/(P)B2/ (P)B3;
Williams Capital I - Preferred stock from Ba1 to B2, preferred
shelf from (P)Ba1 to (P)B2;
Williams Capital II - Preferred shelf from (P)Ba1 to (P)B2;
MAPCO Inc. - Senior unsecured debt from Baa3 to B1;
Northwest Pipeline Corporation - Senior unsecured debt from Baa2
to Ba2, senior unsecured shelf from (P)Baa2 to (P)Ba2;
Texas Gas Transmission Corporation - Senior unsecured debt from
Baa2 to Ba2, senior unsecured shelf from (P)Baa2 to (P)Ba2;
Transco Energy Company - Senior unsecured debt from Baa3 to B1;
Transcontinental Gas Pipe Line Corporation - Senior unsecured debt
from Baa2 to Ba2, senior unsecured shelf from (P)Baa2 to (P)Ba2;
Williams Gas Pipeline Central, Inc. - Senior unsecured
debt from Baa2 to Ba2;
Barrett Resources Corporation - Senior unsecured debt and issuer
rating from Baa3 to B1.
Headquartered in Tulsa, Oklahoma, the Williams Companies,
Inc. is a diversified energy services company.
Moody's Investors Service
Vice President - Senior Analyst
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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