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Rating Action:

Moody's reviews Williams' ratings for upgrade

21 May 2007
Moody's reviews Williams' ratings for upgrade

Approximately $6.9 billion of debt securities affected

New York, May 21, 2007 -- Moody's Investors Service placed ratings for The Williams Companies, Inc. (Williams, Ba2 Corporate Family Rating) under review for possible upgrade. This action reflects Williams' announcement that it intends to sell substantially all of its merchant power generation operations. Moody's also placed the ratings of Williams' natural gas pipeline subsidiaries under review for possible upgrade: Williams Gas Pipeline Company, LLC (Ba1 Corporate Family Rating), Transcontinental Gas Pipe Line Corporation (Transco, Ba1 senior unsecured) and Northwest Pipeline Corporation (Northwest, Ba1 senior unsecured). LGD assessments are also subject to change. The ratings of Williams Partners LP (WPZ, Ba3 Corporate Family Rating) were not affected by this rating action. The power sale should close in the next six months and Moody's expects to conclude the ratings review in a similar time frame.

The review for upgrade reflects the positive benefits Williams receives from exiting its power business, which include improved leverage and lower volatility of cash flow and earnings. Williams incurs approximately $400 million in annual tolling payments that result in higher adjusted debt and leverage. The power business creates additional volatility from its power sales contracts and hedging transactions, which requires Williams to maintain substantial liquidity for letters of credit and other adequate assurance. Moody's has indicated it believes the power business lowers Williams' CFR by one notch. Assuming Williams disposes of substantially all its power obligations, Moody's expects the ratings review to result in a one notch upgrade once the power sale closes.

In addition to the power sale, Moody's ratings review will evaluate Williams' fundamental operating and financial metrics and near-term trends in its core natural gas businesses to consider whether the company's overall performance warrants an additional one notch upgrade. Moody's recognizes Williams' growing natural gas production in its E&P segment and its leading cost structure metrics. However, these benefits are tempered by the relative concentration in Williams' E&P business. Williams' midstream business continues to benefit from robust gas processing spreads and expected growth from its organic development projects, offset by its higher commodity price exposure. Growth in both the E&P and midstream segments is tempered by Williams' higher capital spending resulting in negative free cash flow, which will factor into Moody's review.

In addition to the quantitative analysis of Williams' performance without the power business, consideration of a ratings upgrade to Baa3 will include Moody's assessment of management's willingness to manage the company in a manner consistent with an investment grade rating. This includes the company's growth strategy, both through organic development as well as by potential acquisitions. Williams' financial policies will be an important consideration, including leverage targets, capital spending plans, dividend policy and share repurchases. Furthermore, Moody's will evaluate the risk of shareholder pressure and the likelihood that Williams would take actions that benefit stockholders to the detriment of debt holders such as a leveraging acquisition or substantial stock buyback.

Williams' interstate natural gas pipelines provide significant stability to the company's overall credit profile. Both Transco and Northwest filed rate cases with the FERC last year and Williams began charging new tariffs, subject to refund, in the first quarter. Northwest has settled its rate case with regulators and shippers while Transco continues to negotiate a settlement. The ratings review will assess the timing and likelihood of a favorable Transco rate case settlement analogous to the returns implied in the Northwest settlement. Moody's expects the review could result in Transco's and Northwest's ratings being two notches higher than Williams' corporate 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.

New York
John Diaz
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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