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04 Apr 2006
MOODY'S PLACES WILLIAMS' RATINGS (Ba3 CFR) UNDER REVIEW FOR POSSIBLE UPGRADE
Approximately $8.4 Billion of Debt Securities Affected
New York, April 04, 2006 -- Moody's Investors Service placed The Williams Companies, Inc.'s
(Williams, Ba3 Corporate Family Rating) long term debt ratings under
review for possible upgrade. This action reflects Williams'
improving operating performance in its core natural gas businesses,
its risk mitigation strategy in the power segment, modest debt reduction
and continued strong liquidity. These positive results are tempered
by high levels of growth-related capital spending in each segment
that are expected to result in negative free cash flow during 2006,
volatility in the company's enterprise risk management, and
growing shareholder pressure to maximize value in its midstream and E&P
segments. We expect to conclude the review in June.
The ratings review will include Moody's evaluation of (i) Williams'
core natural gas business segments' -- exploration and production
(E&P), midstream and pipes -- expected operating performance
and operating cash flow; (ii) capital spending plans and resulting
free cash flow; (iii) forward power sales and the extent to which
these offset Williams' tolling obligations; (iv) the company's
ability to generate positive operating cash flow from power; (v)
Williams' capital structure and debt reduction targets, including
any potential elimination of secured debt; and (vi) the company's
The fundamentals of Williams' natural gas businesses have improved
over the past two years. Total operating income for these three
segments (including corporate and other expenses) increased 18%
in 2004 over 2003 and rose another 17% in 2005. The improvement
in 2005 resulted from 18% higher domestic gas production in E&P
and fewer low price natural gas hedges, while the interstate gas
pipelines and midstream segments' operating income declined somewhat.
In 2006, E&P production is expected to increase 15-20%
primarily as a result of an active drilling program in the Piceance Basin.
Williams expects both segment income and cash flow from operations to
increase in 2006; however this increase is tempered by higher growth-related
capital spending in all parts of the business, most likely leading
to negative free cash flow in 2006.
In addition, since announcing it was remaining in the power business
18 months ago, Williams has sold power forward to mitigate its tolling
obligations. The company has good visibility for hedged power sales
for 2006 through 2008, where it forecasts hedged cash flows that
cover the roughly $400 million in annual tolling requirements.
We note, though, that the power segment's performance
remains volatile as shown by the impact of weather, hurricanes and
natural gas prices during 2005.
Williams reduced balance sheet debt by $250 million during 2005
and another $280 million so far in 2006, reflecting $220
million of converts that were tendered and scheduled retirements.
In addition, Williams anticipates amending its $1.275
billion bank credit facility to eliminate the security, and repaying
or refinancing without security the RMT term loan that had a balance of
$488 million at year-end 2005. If both of these events
happen, Williams will have virtually no secured debt other than
some project debt, which may affect notching the company's
senior unsecured debt below the corporate family rating.
The Williams Companies, Inc., headquartered in Tulsa,
Oklahoma, is an integrated natural gas company with operations in
interstate natural gas pipelines, midstream gas, E&P and
electric power generation.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
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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