Dec 12 - Fitch Ratings does not anticipate changing its ratings for The
Williams Companies, Inc. (WMB) based on yesterday's announced
transaction which will result in WMB's purchase of general partner (GP) and
limited partner (LP) interests in Access Midstream Partners (ACMP).
Currently, WMB's Issuer Default Rating (IDR) and senior unsecured rating are
'BBB-', with a Stable Rating Outlook.
The two-step transaction as outlined by WMB contemplates the purchase from
Global Infrastructure Partners (GIP) Fund I of a 50% interest in ACMP's GP and
34.5 million subordinated LP units in ACMP for $1.823 billion; ACMP will
simultaneously purchase midstream assets from Chesapeake Energy Corporation
(CHK; IDR 'BB-', Outlook Negative). Following the transaction, WMB and GIP Fund
II will each own a 50% interest in ACMP's GP and will have equal governance
With WMB's and GIP's support, ACMP will also acquire the majority of CHK's
remaining midstream assets at its subsidiary Chesapeake Midstream Development
(CMD) for $2.16 billion. WMB and GIP have each agreed to make an equity
investment into ACMP of between $400 million and $600 million and for a portion
of such equity investment to be PIK units.
Key Rating Factors: Fitch views the transaction as credit neutral. Favorable
considerations include: WMB's pro forma credit metrics based on expected
transaction financing remain consistent with Fitch's prior expectations of 2013
debt to EBITDA of 4.0x.; use by WMB of equity to fund a significant portion of
its purchase; WMB's strong near-term and long-term liquidity position; the fact
that Williams Partners L.P. (WPZ; IDR 'BBB-', Positive Outlook) continues to
provide the majority of WMB's earnings and cash flow; an increasing percentage
of fee-based consolidated company revenues following the transaction; and the
fact that most ACMP contracts have risk protections. Additionally, ACMP provides
a long-term growth platform and entry in new shale basins.
Credit concerns include: near-term transaction risk; ACMP's growth plans and
upstream partner distributions which continue to rely on capital market access;
and increased counterparty exposure to CHK following closure of the deal,
although acreage dedications provided under the majority of the gas gathering
contracts minimize CHK's ability to reject contracts in a bankruptcy scenario.
Liquidity: WMB's liquidity position is expected to remain strong given its cash
resources and minimal refunding requirements. WMB has a $900 million unsecured
revolving credit facility that matures June 2016. The revolver has a maximum
debt to EBITDA ratio of 4.5x (5.0x following acquisitions of $50 million or
more). There are currently no borrowings under the revolver. WMB has arranged
for a $2.5 billion bridge facility as a backstop should it not access the debt
and equity markets to fund the ACMP transaction. Fitch views WMB's access to
capital and its commitment to equity financing as significant rating factors.
Positive: Future developments that may, individually or collectively, lead to a
positive rating action include: consolidated company and parent company
stand-alone deleveraging; lowered business risk through a higher percentage of
fee-based revenues, and improving credit quality at WPZ.
Negative: Future developments that may, individually or collectively, lead to a
negative rating action include: increasing leverage with consolidated debt to
EBITDA above 4.5x for a sustained period, a rating downgrade at WPZ, and poor
performance at WMB's Canadian operations.
Additional information is available at'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 8, 2012;
--'2013 Outlook: Natural Gas Pipelines and MLPs' Nov. 29, 2012;
--'2013 Outlook: Midstream Services and MLPs' Nov. 29, 2012;
--'Eagle Ford Shale Report: Midstream and Pipeline Sector Economics Driving
Growth' Oct. 15, 2012;
--'Pipelines, Midstream, and MLP Stats Quarterly - Second Quarter 2012' Sept.
--'Marcellus Shale Report: Midstream and Pipeline Sector Challenges and
Opportunities' June 10, 2012;
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors' May 1,
--'Master Limited Partnerships 101' Nov. 1, 2011;
--'Natural Gas Pipelines: Hot Topics' Oct. 13, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
2013 Outlook: Natural Gas Pipelines & MLPs
2013 Outlook: Midstream Services and MLPs
Eagle Ford Shale Report (Midstream and Pipeline Sector - Economics Driving
Pipelines, Midstream, and MLPs
Marcellus Shale Report: Midstream and Pipeline Sector --
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
Master Limited Partnerships 101
Natural Gas Pipelines: Hot Topics -- Long-Term Trends Affecting Pipeline Risk