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Rating Action:

Moody's reviews Williams' ratings for upgrade; affirms Williams Partners at Baa3, stable outlook

17 May 2018

Around $22 billion of rated debt affected

New York, May 17, 2018 -- Moody's Investors Service (Moody's) placed the ratings of The Williams Companies, Inc. (Williams) under review for upgrade, including the Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR), and the Ba2 senior unsecured ratings. Moody's also changed the rating outlooks to stable from positive for Williams Partners, LP (WPZ) and its wholly-owned pipeline subsidiaries, Northwest Pipeline GP (Northwest) and Transcontinental Gas Pipeline Company, LLC (Transco). 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.

These actions follow the announcement by Williams that it has reached an agreement to acquire all of the public outstanding common units of WPZ in exchange for Williams' shares in an all stock-for-unit transaction. The transaction is valued at $10.5 billion and will effectively consolidate WPZ into Williams, which will be the sole publicly traded company and the primary entity for raising capital to fund the combined company's growth going forward.

"We expect that Williams will continue its strong execution on its growth projects while maintaining consolidated financial leverage and dividend coverage metrics supportive of a Baa3 rating," said Pete Speer, Moody's Senior Vice President. "Its diversified asset base with largely fee-based cash flows and increasing amounts of retained cash flow should enable the company to reduce its financial leverage and sustain high levels of dividend coverage."

On Review for Upgrade:

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

.... Probability of Default Rating, Placed on Review for Upgrade, currently Ba2-PD

.... Corporate Family Rating, Placed on Review for Upgrade, currently Ba2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently Ba2 (LGD4)

Outlook Actions:

..Issuer: Northwest Pipeline GP

....Outlook, Changed To Stable From Positive

..Issuer: Transcontinental Gas Pipeline Company, LLC

....Outlook, Changed To Stable From Positive

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

....Outlook, Changed To Rating Under Review From Positive

..Issuer: Williams Partners L.P.

....Outlook, Changed To Stable From Positive

Affirmations:

..Issuer: Northwest Pipeline GP

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

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

..Issuer: Transcontinental Gas Pipeline Company, LLC

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

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

..Issuer: Williams Partners L.P.

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

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

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

....Senior Unsecured Regular Bond/Debenture (including backed), Affirmed Baa3

RATINGS RATIONALE

Moody's will conclude the review of Williams' ratings upon closing of the merger, currently anticipated to occur in the fall of 2018, subject to standard closing conditions including the approval of Williams' shareholders. Moody's expects that the senior unsecured ratings of Williams will likely be upgraded to Baa3 at the conclusion of the review, based on the announced terms of the transaction and the expectation that the debt of Williams and WPZ will become pari passu through cross-guarantees or other means.

From the perspective of Williams' consolidated credit profile, the acquisition of the remaining 26% of WPZ in an all equity transaction would improve the overall credit profile of Williams. The acquisition will reduce structural complexity, avoid potentially lower revenues at the company's regulated pipelines under the recent FERC ruling, and provide cash tax benefits to Williams. The combined entity will have strong dividend coverage metrics and the corresponding ability to internally fund a meaningful portion of its growth capital expenditures. This will result in less reliance on equity markets to fund growth capital and correspondingly sounder liquidity.

For WPZ's senior unsecured creditors, the benefits of the merger to the consolidated credit profile will be offset by losing their structurally superior position in the capital structure relative to Williams' creditors. Consequently the potential for an upgrade of the WPZ debt to Baa2 indicated by the prior positive outlook has been negated for the time being. Conversely, Williams' current senior unsecured creditors will benefit from becoming pari passu with WPZ's creditors as opposed to their present structurally subordinated position, resulting in the anticipated upgrade of Williams' debt to Baa3.

Following the closing of the transaction, Williams' likely Baa3 senior unsecured rating would be 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 rating also incorporates the inherent volume risk in the G&P business, which has some vulnerability to periods of weak natural gas and natural gas liquids prices and corresponding declines in customer drilling activity. Williams still has some customer concentration risk with Chesapeake Energy Corporation (Chesapeake, B3 stable), but that exposure has been reduced.

The senior unsecured ratings of the wholly owned pipeline subsidiaries, Transco and Northwest, are Baa2, or one notch above WPZ's present Baa3 rating and the expected rating for the combined Williams and WPZ after the merger. The pipelines' debts are not guaranteed by WPZ or Williams, and the pipelines do not guarantee any of WPZ's or Williams' debts, and Moody's expects this structural separation to be maintained after the merger. 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. On a standalone basis, each pipeline's credit profile could support a higher rating. However, their ratings have been limited to one notch above the parent's rating to reflect the company's dependence on their cash flows to support its own debt service requirements and distributions.

Following the completion of the merger transaction, we expect the rating outlook to be stable based on our expectation that Williams' consolidated Debt/EBITDA will decline below 5x in 2019. Williams' anticipated Baa3 rating could be upgraded in the future if the company is able to maintain consolidated Debt/EBITDA below 4.5x with strong dividend coverage. Conversely, if Debt/EBITDA were to remain above 5x then the Baa3 rating could be downgraded.

The principal methodology used in rating Williams Companies, Inc. (The), Williams Partners L.P., and Williams Partners L.P. (Old) was Midstream Energy published in May 2017. 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 presently owns about 74% 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: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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