New York, August 02, 2016 -- Moody's Investors Service (Moody's) downgraded The Williams Companies,
Inc.'s (Williams) Corporate Family Rating (CFR) to Ba2 from
Ba1 and its senior unsecured notes ratings to Ba2 from Ba1. The
SGL-3 Speculative Grade Liquidity (SGL) Rating was affirmed and
the rating outlook is negative. This action concludes the ratings
review for downgrade that was initiated on September 29, 2015.
Additionally, Moody's affirmed Williams Partners, LP's
(WPZ) Baa3 senior unsecured ratings and its Prime-3 short-term
rating. The Baa2 senior unsecured ratings of WPZ's wholly owned
pipeline subsidiaries, Northwest Pipeline (Northwest) and Transcontinental
Gas Pipeline Company (Transco), were also affirmed. The rating
outlook on WPZ and its rated subsidiaries remains negative.
"The downgrade of Williams was driven by our expectations for weaker credit
metrics at the parent company level, including higher financial
leverage caused by less retention of cash distributions from WPZ,"
said Pete Speer, Moody's Senior Vice President. "The affirmation
of WPZ's Baa3 rating reflects the partnership's effectively
reduced distribution burden and other plans to sustain its financial leverage
and distribution coverage at levels supportive of its ratings.
However, the challenges posed by weak commodity prices and customer
volume headwinds along with the execution risk on planned asset sales
and growth projects has resulted in our maintaining the negative outlook."
Downgrades:
..Issuer: Williams Companies, Inc. (The)
.... Probability of Default Rating,
Downgraded to Ba2-PD from Ba1-PD
.... Corporate Family Rating, Downgraded
to Ba2 from Ba1
....Multiple Seniority Shelf, Downgraded
to (P)Ba2 from (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2 (LGD 4) from Ba1 (LGD 4)
Affirmations:
.... Speculative Grade Liquidity Rating,
Affirmed SGL-3
Outlook Actions:
..Issuer: Williams Companies, Inc. (The)
....Outlook, Changed To Negative From
Rating Under Review
Affirmations:
..Issuer: Williams Partners L.P.
....Multiple Seniority 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, Remains 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
..Issuer: Northwest Pipeline GP
....Outlook, Remains Negative
Affirmations:
..Issuer: Transcontinental Gas Pipeline Company,
LLC
....Senior Unsecured Regular Bond/Debentures,
Affirmed Baa2
....Senior Unsecured Shelf, Affirmed
(P)Baa2
..Issuer: Transcontinental Gas Pipeline Company,
LLC
....Outlook, Remains Negative
RATINGS RATIONALE
Williams' commitment to participate in WPZ's Distribution
Reinvestment Plan (DRIP) effectively allows WPZ to retain more of its
operating cash flow to fund growth capital expenditures, lessening
its reliance on capital markets and improving its ability to lower its
financial leverage by reducing future increases in debt. While
this supports WPZ's Baa3 rating, it will weaken Williams'
parent company only credit metrics by effectively reducing its net cash
flow available to service its own debts. The cut in Williams'
dividend will offset the diminished net cash flow received from WPZ and
thereby avoid future increases in debt at Williams. But the company's
stand-alone financial leverage will still rise substantially while
its interest coverage will correspondingly weaken, which Moody's
expects to persist through at least 2017.
The weaker expected stand-alone credit metrics at Williams led
to the downgrade of its CFR to Ba2, or two notches below WPZ's
Baa3 senior unsecured rating. The Ba2 CFR incorporates Williams'
control of WPZ and access to much of the cash flows generated by WPZ's
asset base of high quality pipeline and midstream assets through its ownership
of the general partner interest and a majority of the limited partner
interest in WPZ. 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.
WPZ's Baa3 rating is supported by its rising cash flows coming from organic
growth capital projects that are primarily related to its interstate pipeline,
Transco, and supported by contractual commitments. The Baa3
rating is also supported by management's ability further adjust distributions
and defer and reduce capital spending to mitigate its external financing
requirements in the event that earnings fall short of projections.
Measures taken to date, including the initiation of the DRIP program
and ongoing reduction of operating costs, combined with planned
asset sales provide visibility for continued declines in financial leverage
through 2017, with Debt/EBITDA expected to remain below 5x.
WPZ owns a 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 assets.
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.
The negative outlook for WPZ reflects the inherent volume risk in its
gathering and processing assets and the stress faced by exploration and
production companies in this low commodity price environment. While
a meaningful portion of its G&P business is supported by long-term
contracts that have minimum volume commitments or other contractual terms
to mitigate volume risks, WPZ has a high level of customer concentration
risk with Chesapeake Energy (Caa2 negative). These challenges could
cause earnings growth to fall below expectations and result in higher
financial leverage. If WPZ executes on its asset sales plans and
organic growth projects and sustains Debt/EBITDA below 5x and distribution
coverage above 1x then the outlook could be changed to stable.
Williams', Transco's and Northwest's rating outlooks are also
negative, consistent with WPZ's outlook.
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.
Moody's expects that Williams parent company only debt/EBITDA (net
of DRIP) will rise towards 5x in 2017 and then trend down towards 4x in
2018 and thereafter. If Williams' stand-alone leverage
trajectory were to increase and be sustained above 5x then Williams'
ratings could be downgraded.
A ratings upgrade is unlikely through 2017 given the present financial
leverage and fundamental energy industry challenges. In order to
be considered for an upgrade to Baa2, WPZ would have to reduce its
Debt/EBITDA towards 4x and increase its distribution coverage above 1.2x
(excluding the benefits of a DRIP program) 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 (net
of any DRIP) were to be sustained below 2x.
WPZ's Prime-3 rating reflects its Baa3 rating and our expectation
that the partnership will maintain adequate liquidity primarily because
of its $3.5 billion senior unsecured credit facility that
matures in February 2020 and provides for working capital needs and short-term
borrowing capacity to fund growth capital expenditures. At March
31, 2016, WPZ had $2.7 billion of availability
on its revolving credit facility and $125 million of cash.
Like most master limited partnerships (MLP), the partnership has
historically relied on funding its growth capital expenditures through
a mix of equity and debt capital markets issuances. WPZ has some
flexibility to reduce its capital expenditures and it can adjust distributions
to reduce some of its external funding requirements as capital markets
conditions warrant.
Williams' SGL-3 rating reflects its adequate parent company liquidity
primarily based on its available borrowing capacity under its $1.5
billion committed revolving credit facility. The company's
net distributions received from WPZ are expected to cover its reduced
dividends to shareholders, stand-alone operating expenses
and modest capital expenditures requirements. At March 31,
2016, Williams had $465 million of availability under its
revolver and $39 million of cash, which provides adequate
liquidity given expected break-even cash flow for the remainder
of 2016 and 2017. The company has good headroom for future covenant
compliance that should continue through 2017 and Moody's expects
that the Williams will reduce its dividends further should there be reductions
in distributions at WPZ.
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 Ratings
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. Currently,
Williams owns the GP interest and 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
