MOODY'S PLACES WILLIAMS COMPANIES' DEBT RATINGS (Sr. Imp. B2) UNDER REVIEW FOR POSSIBLE UPGRADE. UPGRADES WILLIAMS' SPECULATIVE GRADE LIQUIDITY RATING TO SGL-2.
Approximately $11.3 billion of debt affected
New York, July 23, 2004 -- Moody's Investors Service placed The Williams Companies' (Williams
or WMB, Senior Implied B2) debt ratings under review for possible
upgrade. Moody's also upgraded Williams' speculative
grade liquidity rating to SGL-2 from SGL-3. The SGL-2
rating indicates our expectation of good liquidity for the 12 months ending
June 30, 2005.
The review for possible upgrade reflects the progress that Williams has
made relative to the six signposts we laid out in our Credit Opinion of
May 18, 2004. In particular, Williams has substantially
improved its liquidity, primarily through $1.5 billion
in new credit facilities closed in April and May; the company used
cash from asset sales and cash previously posted as margin to prepay about
$1.2 billion of debt through a cash tender offer in June;
WMB announced a definitive agreement to sell three straddle plants in
Canada that should generate about $500 million, net of costs
and currency adjustments, and close later in the third quarter;
and the company moved toward reducing its contingent liabilities through
FERC approval of the California utilities settlement received earlier
The review will also focus on these signposts, including Williams'
ability to generate durable and sustainable operating cash flow and free
cash flow (net of capex) from its core natural gas businesses.
We will review the company's second quarter results and work with
management to understand its near- to medium-term cash flow
from operations, working capital requirements and capital spending
plans. Moody's will also review the cash flow/cash requirements
of Williams' non-core power business and what impact that
may have on the rating.
The SGL-2 rating reflects improvements in Williams' liquidity
primarily as a result of new bank facilities that closed in the second
quarter, which replaced the company's $800 million
cash-collateralized credit facility. In April, Williams
obtained $500 million senior unsecured, five-year
credit facilities supported by institutional investors. The new
facilities freed up about $500 million in cash, including
$400 million that had collateralized letters of credit and $100
million of cash posted as margin. In May 2004, Williams closed
a $1 billion secured three-year credit facility, which
is secured by midstream assets and is guaranteed by Williams Gas Pipeline,
the holding company for Williams' FERC regulated natural gas pipelines.
Williams' SGL-2 rating is also supported by WMB's improving
operating cash flow offset somewhat by the risk that the company remains
free cash flow positive (after capex). The rating also considers
other risks to WMB's liquidity, in particular Williams'
power business and its enterprise risk management. This includes
the company's potentially large and hard to predict working capital
needs related to hedging gas production, gas processing contracts,
and power supply contracts.
At the end of the second quarter, Williams had approximately $1.7
billion total liquidity, consisting of about $900 million
of cash and $800 million of undrawn availability under its $1
billion credit facility. WMB has said it intends to maintain $1
to $1.3 billion of total liquidity. Williams used
$1.2 billion of the $2 billion in cash it had at
the end of the first quarter to retire outstanding debt through a tender
offer. Moody's estimates that cash flow from operations over
the next twelve months will be adequate to meet projected capex,
minimal debt maturities and small dividend payments.
Williams has not released its second quarter financial statements or its
compliance certificate for the new bank facilities. However WMB
estimates that even in a down case scenario, it would be able to
fully draw on its available capacity under its credit facilities and remain
within the financial covenants. Williams has very few non-core
assets left to sell and we expect asset sales proceeds will not contribute
material cash after the third quarter 2004. The most significant
remaining assets to be sold are the Canadian straddle plants.
The following ratings were placed under review: Williams's
B2 Senior Implied, B3 Senior Unsecured Issuer, B3 Senior Unsecured
debt and (P)B3/(P)Caa2/(P)Caa3 Senior Unsecured/Subordinated/Preferred
Shelf. Williams Capital I Caa2 Trust Preferred Stock and (P)Caa2
Trust Preferred Shelf. Williams Capital II (P)Caa2 Trust Preferred
Shelf. MAPCO Inc. B3 Senior Unsecured debt. Northwest
Pipeline Corporation B1 Senior Unsecured debt and (P)B1 Senior Unsecured
Shelf. Transco Energy Company B1 Senior Secured debt. Transcontinental
Gas Pipe Line Corporation B1 Senior Unsecured debt and (P)B1 Senior Unsecured
Based in Tulsa, Oklahoma, The Williams Companies, Inc.
is a diversified energy company.
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service