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Rating Action:

Moody's changes Williams Partners' and Williams' rating outlooks to stable

10 Jan 2017

New York, January 10, 2017 -- Moody's Investors Service (Moody's) changed Williams Partners, LP's (WPZ) and its wholly owned pipeline subsidiaries', Northwest Pipeline (Northwest) and Transcontinental Gas Pipeline Company (Transco), rating outlooks to stable from negative. Moody's also changed The Williams Companies' (Williams) rating outlook to stable from negative.

Additionally, Moody's affirmed the Baa3 senior unsecured rating and the Prime-3 short term rating of WPZ and the Baa2 senior unsecured ratings of Northwest and Transco. The Ba2 Corporate Family Rating (CFR) and the SGL-3 Speculative Grade Liquidity (SGL) Rating of Williams were also affirmed.

"The reduction in WPZ's distribution burden and accompanying restoration of healthy distribution coverage, combined with the large equity offering supports a stable rating outlook across the Williams' family of companies," said Pete Speer, Moody's Senior Vice President. "These strong actions taken by Williams should enable WPZ to sustain credit metrics consistent with its Baa3 ratings, even if the partnership's organic earnings growth encounters some headwinds from customer volumes."

Affirmations:

..Issuer: Williams Companies, Inc. (The)

.... Probability of Default Rating, Affirmed Ba2-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

.... Corporate Family Rating, Affirmed Ba2

....Senior Unsec. Shelf, Affirmed (P)Ba2

....Senior Unsecured Regular Bond/Debentures, Affirmed Ba2 (LGD 4)

Outlook Actions:

..Issuer: Williams Companies, Inc. (The)

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Williams Partners L.P.

....Senior Unsec. Shelf, Affirmed (P)Baa3

....Senior Unsecured Commercial Paper, Affirmed P-3

....Senior Unsecured Regular Bond/Debentures, Affirmed Baa3

Outlook Actions:

..Issuer: Williams Partners L.P.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Williams Partners L.P. (Old)

....Senior Unsecured Regular Bond/Debentures, Affirmed Baa3

Affirmations:

..Issuer: Northwest Pipeline GP

....Senior Unsecured Regular Bond/Debentures, Affirmed Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

Outlook Actions:

..Issuer: Northwest Pipeline GP

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Transcontinental Gas Pipeline Company, LLC

....Senior Unsecured Regular Bond/Debentures, Affirmed Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

Outlook Actions:

..Issuer: Transcontinental Gas Pipeline Company, LLC

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

WPZ's stable outlook reflects Moody's expectation that WPZ's financial leverage and distribution coverage will improve in 2017 because of the reduction of its distribution burden, earnings growth from fee-based capital projects, and the equity pre-funding of most, if not all, of its funding needs for 2017. Potential assets sales, targeted at $2 billion, could further reduce its financial leverage and substantially lessen the need to access equity markets to fund growth spending in 2018. Williams', Transco's and Northwest's rating outlooks are also stable, consistent with WPZ's outlook. Williams' stable outlook also reflects Moody's expectation for a steady decline in parent-only debt levels through 2018 funded through free cash flow at the parent company.

On January 9, Williams and WPZ announced an agreement that effectively converts Williams' general partner interest into a non-economic interest and eliminates the Incentive Distribution Rights (IDRs) in exchange for newly issued WPZ limited partner (LP) units. Williams also agreed to purchase about $2 billion of WPZ LP units, which will be funded by an equity offering of Williams common stock that was launched and priced last night. Following these transactions, Williams will own around 74% of WPZ's LP interest, increasing its overall ownership from 60% previously (58% of LP interest and 2% general partner interest).

WPZ's quarterly LP distributions will be cut by 29% beginning with the distributions paid following the first quarter of 2017, which combined with the elimination of IDRs will strengthen WPZ's distribution coverage to approximately 1.2x from the current coverage of barely 1.0x. The equity injection from Williams will lessen WPZ's need to access the capital markets through at least 2017 and aid in the continued improvement of WPZ's leverage metrics, allowing the partnership to sustain Debt/EBITDA at or below 4.5x.

WPZ's Baa3 senior unsecured rating is supported by its large and geographically diversified asset base that is underpinned by the stability of its regulated interstate pipeline operations and largely fee based gathering and processing (G&P) assets. The partnership has rising cash flows coming from organic growth capital projects that are primarily interstate pipeline related and are supported by contractual commitments. The Baa3 rating is also supported by management's ability to further adjust distribution growth and defer or reduce capital spending to mitigate its external financing requirements in the event that earnings fall short of projections. While the inherent volume risk in the G&P business remains elevated, WPZ's high customer concentration risk with Chesapeake Energy (Chesapeake, Caa1 positive) has been reduced following the restructuring of some gathering contracts with Chesapeake and the sale of Chesapeake's Barnett Shale acreage to a subsidiary of Total, S.A. (Total, Aa3 stable), a much stronger counterparty.

With the elimination of IDRs and WPZ's distribution cut, Williams will discontinue its previously planned participation in WPZ's Distribution Reinvestment Plan (DRIP). The diminished gross distribution to Williams following the elimination of IDRs and the LP distribution cut will be more than offset by Williams' increased ownership of LP units and by not participating in the DRIP, resulting in higher net cash flow to Williams from WPZ than previously expected. This increased net cash flow supports Williams announced 50% increase in quarterly dividends and its planned repayment of revolver debt, while also lowering the effective standalone financial leverage at Williams.

Williams' Ba2 CFR reflects its access to much of the cash flows generated by WPZ's asset base of high quality pipeline and midstream assets through its large ownership interest in WPZ's LP units and ongoing control of WPZ through its GP ownership. The rating also reflects the structural subordination of Williams creditors to the debt at WPZ and the limited amount of unencumbered assets at the parent company. Williams' rating is two notches beneath the WPZ Baa3 rating reflecting this structural subordination and its leverage on a parent company only basis.

The senior unsecured ratings of WPZ's wholly owned pipeline subsidiaries, Transco and Northwest, are Baa2, or one notch above WPZ's rating, reflecting WPZ's controlling ownership and the pipelines importance to the partnership's debt service and distribution capacity. Both pipelines' ratings reflect the regulated nature of their operations, their supply diversity and growth potential. The pipelines also benefit from low standalone financial leverage and strong interest coverage. However, their ratings have been limited to one notch above WPZ's ratings to reflect the partnership's dependence on their cash flows to support its own debt service requirements and distributions.

In order to be considered for an upgrade to Baa2, WPZ would have to reduce its Debt/EBITDA towards 4x and sustain distribution coverage above 1.2x, absent a meaningful decrease in its direct commodity price risk or volume risk exposure. A ratings upgrade of WPZ would likely result in an upgrade of Williams, Transco and Northwest, assuming that their standalone credit profiles remain relatively constant or strengthen. Additionally, Williams' ratings could be upgraded if its parent company only debt/EBITDA were to be sustained below 2x.

WPZ's ratings could be downgraded if Debt/EBITDA rises above 5x or if distribution coverage falls below 1x on a sustained basis. The partnership's ratings could also be negatively affected by a significant increase in debt levels at Williams. A downgrade of WPZ is likely to result in a downgrade of Williams, Transco and Northwest. Williams' ratings could also be downgraded if Williams' stand-alone leverage were to increase and be sustained above 5x.

The principal methodology used in rating Williams Companies, Inc. (The), Williams Partners L.P., and Williams Partners L.P. (Old) was Global Midstream Energy published in December 2010. The principal methodology used in rating Northwest Pipeline GP and Transcontinental Gas Pipeline Company, LLC was Natural Gas Pipelines published in November 2012. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Williams, is headquartered in Tulsa, Oklahoma and through its subsidiaries is primarily engaged in the gathering, processing and interstate transportation of natural gas. Williams owns a substantial portion of the LP interests in WPZ, a publicly traded midstream energy MLP. Northwest and Transco are major interstate natural gas pipelines that are wholly owned subsidiaries of WPZ.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Peter Speer
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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