Fitch Affirms Williams Cos.; Outlook Stable & Williams Partners; Outlook Positive

Fitch Affirms Williams Cos.; Outlook Stable & Williams Partners; Outlook Positive | Bild: © dpa

Approximately $8.7 billion of outstanding long-term debt is affected.

Key Rating Factors: WMB's rating affirmation and the removal of its ratings from Watch Negative primarily consider its consolidated and parent holding company credit profiles, its reduced business risk, and the quality of its cash flows. Following the Dec. 31, 2011, spin off of its exploration and production business through WPX Energy Inc. (WPX), WMB's commodity price exposure has been lowered and liquidity needs materially reduced. Near-term event risk has also been reduced, as the pending acquisition of SUG by Energy Transfer Equity, L.P., eliminates Fitch's earlier concerns about the potential leveraging impact of WMB's competing offer to purchase SUG.

Post the WPX spin, a higher percentage of parent company cash flow will come from WPZ partnership distributions which are subordinated to the payment of its fixed obligations. It is worth noting, however, that operations outside the partnership are expected to be a significant source of additional earnings and cash flow, particularly as the development of WMB's Canadian midstream infrastructure and Geismar olefins investments progress. When considering the rating significance of cash flow subordination Fitch recognizes the benefit to WMB from its control over WPZ's operations and financial practices through its ownership of WPZ partnership interests.

WPZ's Positive Outlook reflects the expanding scale and scope of its operations, the predictability of cash flows generated by its pipeline and fee-based midstream assets, above-average credit metrics, and conservative financial practices including a willingness to issue equity to fund growth and by maintaining sustainable partnership distributions. Also considered is WPZ's relationship with WMB, owner of its general partner interest and 73% of its limited partner interests.

Additional rating considerations for WPZ include the subordination of the cash flows generated by NWP and TGPL and its financial exposure to commodity prices. Approximately one half of the gross margin generated from WPZ's midstream assets is commodity based. Currently, WPZ's natural gas liquids (NGL) production is un-hedged. While the percentage of gross margin generated from fee-based operations is expected to increase thus reducing its relative commodity exposure, absent entering into new hedges, WPZ's financial performance will remain sensitive to changes in NGL prices.

TGPL's and NWP's ratings and Positive Outlooks reflect their strong individual operating and financial profiles, offset by the structural and functional ties between these entities and their parent WPZ. Operationally, TGPL and NWP are considered two of the premier pipeline systems in the U.S. Both pipelines boast competitive rate structures, operate in relatively secure markets, have a high percentage of capacity subscribed under medium- to long-term contracts with utility counterparties, and have manageable expansion plans.

Forward Expectations: Fitch projects WMB's 2012 consolidated debt to EBITDA to be 4.0 times (x) or below and parent-level leverage to be 1.3x or below. Debt to EBITDA at WPZ for 2012 is expected to be between 3.5x and 4.0x. Leverage ratios for both WMB and WPZ should end the year at the lower end of the range of expectations if NGL frac spreads continue near current strong levels. NWP and TGPL should continue to maintain strong credit metrics for their rating category for the next several years with debt to EBITDA below 3.0x.

Liquidity: WMB's liquidity is expected to be strong given its substantial cash resources, minimal debt refunding requirements, and reduced capital spending with the separation of WPX. Debt maturities for the next 10 years are insignificant. WMB has a $900 unsecured revolving credit facility that matures in June 2016. The revolver has a maximum debt to EBITDA ratio of 4.5 to 1.0; no greater than 5.0 to 1.0 following acquisitions of $50 million or more. A default at WPZ is an event of default under the WMB revolver. No debt is currently outstanding under the WMB revolver.

WPZ has a $2 billion unsecured revolving credit facility that matures in June 2016. Both TGPL and NWP are co-borrowers for up to $400 million each under the WPZ revolver. Debt maturities for WPZ, TGPL and NWP are manageable, with the only refinancing for the three companies through 2014 being a $325 million TGPL note maturity in 2012. The WPZ revolver has a maximum consolidated debt to EBITDA ratio of 5.0 to 1.0; no greater than 5.5 to 1.0 following acquisitions of $50 million or more. In addition, debt to capitalization for TGPL and NWP can be no greater than 65%. No debt is currently outstanding under the WPZ revolver.

Catalysts for Future Rating Actions: Possible catalysts for negative rating actions for WMB include increasing leverage, a rating downgrade at WPZ, and poor performance from Canadian and olefins operations. Possible catalysts for negative rating actions at WPZ include increasing commodity risk and materially weaker financial performance. A possible catalyst for negative ratings action at TGPL and NWP is a WPZ downgrade.

Possible catalysts for positive rating actions at WMB include consolidated and parent company standalone de-leveraging, lowered business risk, and improving credit quality at WPZ. Possible catalysts for positive rating actions at WPZ include increasing scale and diversity of assets, a greater percentage of revenues generated from pipelines and other fixed-fee assets, and maintenance of strong credit measures under a less favorable commodity price environment. A possible catalyst for positive rating actions at TGPL and NWP is a WPZ upgrade.

Fitch affirms the following ratings with a Stable Outlook:

The Williams Companies, Inc.

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-';

--Junior subordinated convertible debentures at 'BB'.

Fitch affirms the following ratings with a Positive Outlook:

Williams Partners L.P.

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

Williams Partners Finance Corporation

--IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

Transcontinental Gas Pipeline Company, LLC

--IDR at 'BBB';

--Senior unsecured debt at 'BBB'.

Northwest Pipeline GP

--IDR at 'BBB';

--Senior unsecured debt at 'BBB'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' Aug. 12, 2011;

--'Parent and Subsidiary Rating Linkage' Aug 12, 2011.

Applicable Criteria and Related Research:

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

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