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Rating Action:

Moody's upgrades Williams Companies to Baa3, stable outlook

10 Aug 2018

Williams Partners' notes affirmed at Baa3

New York, August 10, 2018 -- Moody's Investors Service (Moody's) upgraded The Williams Companies, Inc.'s (Williams) senior unsecured notes rating to Baa3 from Ba2, and assigned a Prime-3 Commercial Paper (CP) Rating to the company's new CP program. The rating outlook is stable. Moody's also affirmed the Baa3 ratings on Williams Partners L.P.'s (WPZ) senior unsecured notes and its stable rating outlook.

Concurrently, Moody's withdrew Williams' Ba2 Corporate Family Rating, Ba2-PD Probability of Default Rating, and the SGL-2 Speculative Grade Liquidity Rating. Moody's also withdrew WPZ's Prime-3 rating on its CP program which has been cancelled and replaced by Williams' CP program. The Baa2 senior unsecured ratings and stable rating outlooks of Williams' wholly-owned pipeline subsidiaries, Northwest Pipeline LLC (Northwest) and Transcontinental Gas Pipeline Company, LLC (Transco), are unaffected by these actions.

These actions follow the completion of Williams' acquisition of the outstanding limited partner (LP) units of WPZ held by third parties in exchange for Williams shares and concludes the ratings review initiated on May 17, 2018. The closing of the transaction consolidates WPZ into Williams, with Williams assuming WPZ's senior notes.

"With the completion of the merger, Williams has reduced structural complexity and can focus on the execution of its growth projects going forward," commented Pete Speer, Moody's Senior Vice President. "Its diversified asset base with largely fee-based cash flow and increasing amounts of retained cash flow, supported by additional projects coming online, will enable the company to maintain financial leverage and distribution coverage metrics supportive of the Baa3 rating."

Upgrades:

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

....Senior Unsecured Notes, Upgraded to Baa3 from Ba2 (LGD4)

Assignments:

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

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

Outlook Actions:

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

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

..Issuer: Williams Partners L.P.

....Outlook, Remains Stable

Affirmations:

..Issuer: Williams Partners L.P.

....Senior Unsecured Notes, Affirmed Baa3

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

....Senior Unsecured Notes, Affirmed Baa3

Withdrawals:

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

.... Corporate Family Rating, Withdrawn , previously rated Ba2

.... Probability of Default Rating, Withdrawn , previously rated Ba2-PD

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-2

..Issuer: Williams Partners L.P.

....Senior Unsecured Commercial Paper, Withdrawn , previously rated P-3

RATINGS RATIONALE

Williams' Baa3 senior unsecured rating and Prime-3 short term rating are 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 company has rising cash flow coming from organic growth capital projects that are primarily interstate pipeline-related and are supported by contractual commitments. These factors are counterbalanced by high debt levels, high dividend payouts and 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 CFR under review for upgrade), but that exposure has been reduced.

The acquisition of the remaining 26% of WPZ improved Williams' overall credit profile. The acquisition reduced structural complexity, avoided potentially lower revenues at the company's regulated pipelines under recent FERC rulings, and provides cash tax benefits for many years into the future. The combined entity will have strong dividend coverage metrics and the corresponding ability to internally fund a meaningful portion of its growth capital expenditures, resulting in less reliance on equity markets to fund growth capital and correspondingly sounder liquidity. Pursuant to the closing of the transaction, WPZ has been merged into Williams, with Williams assuming WPZ's debts, resulting in all of the Williams and formerly WPZ senior notes becoming pari passu obligations of Williams. The wholly-owned pipeline subsidiaries, Transco and Northwest, do not guarantee any of Williams' debts nor are their debts guaranteed by Williams.

Moody's expects Williams to maintain good liquidity based on availability under its committed revolving credit facility that provides for working capital needs and short-term borrowing capacity to fund growth capital expenditures, along with increased retained cash flow resulting from higher dividend coverage. At June 30, 2018, Williams had $275 million of cash and full availability under its new 5-year $4.5 billion credit facility, which became effective upon closing of the merger. Both Transco and Northwest are co-borrowers on the long-term credit facility with each authorized to borrow up to $500 million to the extent not utilized by Williams. The company's increased retained cash flow and borrowing availability provide funding capacity through 2019 for planned capital expenditures, distributions and any working capital needs.

The credit facility limits Williams' consolidated Debt/EBITDA to 5.75x through second quarter 2019; 5.5x thereafter through fourth quarter 2019; and to 5.0x thereafter (with step-ups to 5.5x for a specified period of time following significant acquisitions), while limiting Transco's and Northwest's respective Debt/Capitalization to 65%. Based on Williams' forecasted metrics and the pipelines current capitalization, there should be good headroom for future compliance with these covenants. The facility does not require general material adverse change representations prior to borrowing on the revolver. Williams has instituted a $4 billion CP program, with no CP outstanding as of the closing of the merger. Borrowings under the CP program are used to fund planned capital expenditures and for other general corporate purposes. Alternate liquidity for the full amount of CP outstanding will be provided by Williams' revolver, supporting the Prime-3 rating.

The rating outlook is stable based on our expectation that Williams consolidated Debt/EBITDA will decline below 5x in 2019. Williams Baa3 rating could be upgraded if the company is able to maintain consolidated Debt/EBITDA below 4.5x and dividend coverage above 1.5x. Conversely, if Debt/EBITDA rises above 5x, or dividend coverage falls below 1x then the Baa3 rating could be downgraded.

The principal methodology used in these ratings was Midstream Energy published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Williams, is headquartered in Tulsa, Oklahoma and through its subsidiaries is primarily engaged in the gathering, processing and interstate transportation of natural gas. Northwest and Transco are major interstate natural gas pipelines that are wholly-owned subsidiaries of Williams.

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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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