Dec 13 - Fitch Ratings assigns a 'BBB-' rating to The Williams Companies,
Inc.'s (WMB) proposed offering of $850 million of senior notes. Note
proceeds will be used to partially fund WMB's purchase of general partner (GP)
and limited partner (LP) interests in Access Midstream Partners (ACMP). WMB has
a Stable Rating Outlook. If the ACMP transaction is not closed by Jan. 31, 2013,
WMB will be required to redeem the notes.
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; Fitch 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
rights. The transaction is expected to close by year end.
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 $350 million and $580 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 approximately $1.4 billion of equity
proceeds 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-' Outlook Positive) 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 entre
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.