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19 Jan 2010
Approximately $9 billion of rated debt affected
New York, January 19, 2010 -- Moody's Investors Service placed Williams Partners, LP's
(WPZ) Ba2 Corporate Family Rating and senior unsecured debt ratings under
review for possible upgrade. Moody's also affirmed The Williams
Companies, Inc.'s (Williams) Baa3 senior unsecured
ratings, and the Baa2 senior unsecured ratings of Transcontinental
Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline GP (Northwest).
These rating actions are in response to Williams announced plan of contributing
substantially all of its midstream and pipeline assets to WPZ.
The rating outlooks for Williams, Transco and Northwest are stable.
"This large asset contribution from Williams gives Williams Partners
the size, business risk mix and leverage profile of a Baa3 rated
MLP," commented Pete Speer, Moody's Vice President.
"Although this reduces the asset base that directly supports Williams'
creditors, the planned reduction in debt at Williams combined with
it retaining a substantial E&P business and control over Williams
Partners supported the affirmation of Williams' Baa3 rating."
WPZ will have pro forma adjusted Debt/EBITDA of approximately 4.1x
at December 31, 2009 which is forecasted to decline to around 3.5x
in 2010. Based on WPZ's scale, business risk profile
and expected financial policies Moody's expects to upgrade WPZ's
issuer and existing senior unsecured debt ratings to Baa3 following the
completion of the transaction. Moody's has assigned Baa3
ratings to the proposed $3.5 billion senior unsecured notes
offering, subject to the completion of transaction in accordance
with our understanding and a review of the final documentation.
Williams will control WPZ through its 2% general partner interest
and own an additional 78% of WPZ through common units. This
ownership interest will give Williams continued access to WPZ's
operating cash flows through distributions paid on the common units.
However, the structural subordination of Williams' creditors
relative to the midstream and pipeline businesses will significantly increase
due to the debt issuance at WPZ. This structural subordination
generally would result in Williams' ratings being notched down from
WPZ's Baa3 rating.
Despite this structural subordination to WPZ's debt, the Baa3
ratings for Williams were affirmed because of the planned $3 billion
debt reduction at Williams and the continued direct ownership of a large
exploration and production (E&P) business, along with the Canadian
midstream, olefins and a 25.5% interest in Gulfstream.
The E&P business has proved reserves and production volumes that are
in the low Baa range in our E&P Rating Methodology, but is heavily
concentrated in the Piceance basin and in natural gas. The rating
affirmation is based on the transactions occurring as outlined to us,
including the achievement of approximately $3 billion of debt reduction
Williams intends to contribute substantially all of its pipeline and midstream
operations to WPZ in exchange for 203 million units of WPZ and the net
proceeds from a proposed offering of $3.5 billion of WPZ
senior unsecured notes. The net proceeds will be used by Williams
to fund a tender offer for $3 billion of Williams' outstanding
debt. WPZ has also announced its intention to exchange WPZ common
units for all of the publicly held common units of Williams Pipeline Partners,
LP (WMZ), effectively consolidating WMZ into WPZ.
WPZ will be one of the largest master limited partnerships in North America
following the asset contribution from Williams. It will wholly
own two major regulated interstate pipelines, Transco and Northwest,
and hold a 24.5% interest in a third pipeline, Gulfstream
Natural Gas System, LLC (Gulfstream). These assets provide
a stable earnings base that is forecasted to provide around 44%
of WPZ EBITDA in 2010.
The midstream assets include natural gas gathering, treating and
processing; NGL fractionation, storage and transportation;
and deepwater production handling and oil transportation. These
operations are concentrated in Colorado, New Mexico, Wyoming
and the Gulf of Mexico. Nearly half of midstream's forecasted
2010 EBITDA is from fee based revenues and the partnership intends to
hedge a significant proportion of its natural gas liquid and natural gas
exposure to reduce the impact of commodity price fluctuations on its 2010
The last rating action on Williams, Transco and Northwest was on
February 23, 2009, when Moody's changed the respective
rating outlooks to stable from negative following Williams' announcement
that it would not pursue the separation of one or more of its principal
business units. The last rating action on WPZ was on November 6,
2008 when Moody's changed the rating outlook to negative from stable.
The principal methodologies used in rating Williams were Moody's
North American Diversified Natural Gas Transmission and Distribution Companies
Rating Methodology, published in March 2007, and Moody's
Global Independent Exploration and Production Industry Rating Methodology,
published in December 2008. The principal methodology used in rating
WPZ was Moody's Midstream Energy Companies & Partnerships Rating
Methodology, published in September 2007. The principal methodology
used in rating Transco and Northwest was Moody's Natural Gas Pipelines
Rating Methodology, published in December 2009. All of these
Rating Methodologies are available on www.moodys.com in
the Rating Methodologies sub-directory under the Research and Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating these issuers can also be found in the Rating
Methodologies sub-directory on Moody's website.
The Williams Companies, Inc. is headquartered in Tulsa,
Oklahoma and through its subsidiaries is engaged in the exploration and
production, gathering, processing and interstate transportation
of natural gas.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's reviews Williams Partners for upgrade, affirms Williams
Corporate Finance Group
Moody's Investors Service
No Related Data.
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