Fitch Ratings has affirmed the ratings for Williams Partners
L.P. (WPZ) and its affiliates, Northwest Pipeline LLC (NWP), and
Transcontinental Gas Pipe Line Company, LLC (TGPL). Fitch has also
affirmed the ratings for Williams Partners Finance Corporation
(WPFC) and The Williams Companies, Inc. (WMB). The Rating Outlook
is revised to Negative from Stable for all issuers.
A full list of affected ratings appears at the end of this
release. Approximately $20.9 billion of debt is affected.
The Negative Outlook is driven by Fitch's expectations that
WPZ's EBITDA will weaken to levels significantly below our previous
base case expectations, due to a combination of very high
volatility in NGLs pricing and additional delays in bringing the
Geismar plant online. Furthermore, spending at the MLP is expected
to remain significant even if there are reductions from the current
budget. For the LTM ending Sept. 30, 2014, leverage (defined as
debt to adjusted EBITDA) was 5.3x, up from 4.4x at the end of 2013.
With expectations for reduced EBITDA, Fitch expects year-end 2015
leverage to be in the range of 4.75-5.0x. Given downwardly revised
projections for EBITDA and distributable cash flows, Fitch
forecasts the distribution coverage ratio may remain below 1.0x at
the end of 2015.
WPZ's Outlook would be revised to Stable if Fitch forecasts
leverage to trend down to 4.5x or lower on a sustained basis. An
Outlook revision at WPZ would be reflected at its affiliates. If
leverage does not appear to be on a path to fall to 4.5x or lower
by year-end 2016, Fitch would consider a one notch downgrade. A
downgrade at WPZ would trigger a downgrade for WMB, NWP, TGPL and
WPFC.
KEY RATING DRIVERS:
Increased Scale and Diversity: WPZ and WMB's ratings are
supported by the benefits of the Access Midstream Partners (ACMP)
acquisition and ongoing organic growth projects which continue to
increase the scale and diversity of its operations. WPZ expects the
ACMP merger to close on Feb. 2, 2015, and WPZ's ratings already
factor in the transaction. Consolidated debt at WPZ will include
all outstanding debt of ACMP. WPZ's 2015 EBITDA was previously
forecasted to be $5 billion (pro forma for the merger).
Approximately 75% of margins were to be generated from fee-based
arrangements which translate into $1.25 billion of gross margin
with commodity exposure. Fitch sees EBITDA well below prior
forecasts.
Also, WMB's and WPZ's relative exposure to volatile natural gas
liquids (NGL) prices should be lower (on a percentage basis) due to
the build-out of fee-based pipeline and midstream facilities in the
Marcellus and Utica production. ACMP's midstream operations are
100% fee-based and will further reduce commodity price exposure.
However, the volatility of the portion of the business that is
exposed to NGLs has been very high over the last few months, and in
sympathy with the fall in crude, NGLs have fallen 45% since the end
of the third quarter of 2014.
Of concern also is the status of the rebuild and expansion of
WPZ's Geismar olefins plant. Delays have been ongoing, and it
remains unclear when the facility will begin although it is
expected soon.
Forward Expectations: WPZ's adjusted 2013 debt to EBITDA was
approximately 4.0x and previously Fitch targeted 2014 year-end
leverage to be fairly unchanged although it was clear that Geismar
delays would increase leverage. It is now expected that leverage
may be above 5.0x and with lower expectations for EBITDA in 2015,
Fitch expects year-end 2015 leverage to be in the range of
4.75-5.0x. Credit measures for both WPZ and WMB should strengthen
modestly in 2016 as several large organic projects come on line and
the benefits of increased fixed-fee revenues are felt.
Favorable Liquidity: As of Sept. 30, 2014, WPZ's liquidity
appeared to be sufficient. Cash on the balance sheet was $110
million. WPZ has access to a $2.5 billion revolving credit facility
that matures in July 2018 and backstops a $2 billion commercial
paper (CP) program. WPZ had no borrowings under the revolver and
$265 million of outstanding CP as of Sept. 30, 2014. TGPL and NWP
are each co-borrowers under WPZ's revolver for up to $500 million.
The revolver financial covenants include a maximum consolidated
leverage ratio of 5.0x, or 5.5x during a period following
acquisitions of $50 million or more. TGPL and NWP have
debt-to-capitalization maximums of 65%. The revolver also includes
a change of control clause, limitations on liens, and restrictions
on asset sales and mergers. The partnership has near term debt of
$750 million of 3.8% notes due Feb. 15, 2015. Beyond that, there
are no additional debt maturities until 2017.
ACMP has a $1.75 billion revolver due 2018. This partnership
does not have any debt maturities until 2021.
In conjunction with the merger of the MLPs, a new sizeable
revolver is to be established to provide for liquidity needs.
WMB's liquidity position is expected to remain strong given its
cash resources and minimal refinancing requirements. As of Sept.
30, 2014 the company had $302 million of cash on the balance sheet.
WMB has a $1.5 billion unsecured, revolving credit facility that
matures in July 2018. The revolver has a maximum debt-to-EBITDA
ratio of 4.75x (5.5x following acquisitions of $50 million or
more). There are currently no borrowings under the revolver. WMB
has no debt maturities until 2019.
RATING SENSITIVITIES
Positive: Future developments that may, individually or
collectively, lead to a positive rating action include:
WPZ
--Expectations for leverage (defined as debt to adjusted EBITDA)
to return to 4.5x or lower and remain there on a sustained basis to
return to a Stable Outlook at the current rating;
--Increased scale and diversity of assets;
--A material reduction in exposure to commodities.
WMB, TGPL, NWP and WPFC
--A Stable Outlook or an upgrade at WPZ.
Negative: Future developments that may, individually or
collectively, lead to a negative rating action include:
WPZ
--Increasing commodity risk;
--Extended outages at the Geismar not covered by insurance;
--Weaker credit metrics with sustained leverage above 4.5x.
WMB, TGPL, NWP and WPFC
--A downgrade at WPZ.
Fitch affirms the following ratings with a Negative Outlook:
Williams Partners L.P.
--IDR at 'BBB';
--Senior unsecured debt at 'BBB';
--Short-term IDR and CP at 'F2'.
Williams Partners Finance Corporation
--Senior unsecured debt at 'BBB'.
The Williams Companies, Inc.
--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-';
--Junior subordinated convertible debentures at 'BB'.
Transcontinental Gas Pipe Line Company, LLC
--IDR at 'BBB+';
--Senior unsecured debt at 'BBB+'.
Northwest Pipeline LLC
--IDR at 'BBB+';
--Senior unsecured debt at 'BBB+'.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria and Related Research
--'2015 Outlook: Midstream Services (Midstream Insulated from
Falling Prices)' (December 2014);
--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter
2014' (December 2014);
--'MLP End Game (Common Goals - Divergent Strategies) (November
2014);
--'Bakken Shale Report (Prolific Production Prompts New
Pipelines) (October 2014);
--'What Investors Want to Know: Pipelines, Midstream and MLPs'
(October 2014);
--'Midstream Spending Significantly Rising for MLPs and C-Corps'
(August 2014);
--'Corporate Rating Methodology - Including Short-Term Ratings
and Parent and Subsidiary Linkage' (May 2014)';
--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors'
(January 2014).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978952
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Fitch RatingsPrimary AnalystKathleen
ConnellyDirector+1-212-908-0290Fitch Ratings, Inc.33 Whitehall
StreetNew York, NY 10004orSecondary AnalystPeter MolicaSenior
Director+1-212-908-0290orCommittee ChairpersonMike WeaverManaging
Director+1-312-368-3156orMedia Relations:Alyssa Castelli, New York,
+1 212-908-0540Email: alyssa.castelli@fitchratings.comElizabeth
Fogerty, New York, +1 212-908-0526Email:
elizabeth.fogerty@fitchratings.com