Fitch Rates $1.5B Williams Partners Notes 'BBB-'; Outlook Positive
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB-' rating to Williams Partners L.P.'s (WPZ) proposed $1.5 billion issuance of senior notes. Senior note proceeds will be used to repay outstanding commercial paper, to fund capital expenditures, and for general partnership purposes. The Rating Outlook is Positive.
KEY RATING FACTORS
Increasing Scale and Diversity: WPZ's rating reflects the scale and scope of its operations, the predictability of cash flow generated by its pipelines and fee-based midstream operations, and its conservative financial practices. Also considered is its relationship with The Williams Companies, Inc. (WMB, rated 'BBB-'; Outlook Stable) owner of WPZ's general partner (GP) and 62% of its limited partner interests. In May 2013, WMB agreed to waive its rights to up to $200 million of incentive distributions in an effort to support WPZ's growth spending and manage its distribution metrics. Third-quarter cash distributions in 2013 were reduced by $90 million of waived distribution rights. No waiver was utilized with respect to the fourth-quarter distribution and none is anticipated for the first quarter of 2014.
WPZ subsidiaries include its wholly-owned FERC-regulated interstate pipelines, Transcontinental Gas Pipeline Company LLC (TGPL, rated 'BBB' ; Outlook Positive), Northwest Pipeline LLC (NWP, rated 'BBB'; Outlook Positive) and a 50% interest in Gulfstream Pipeline.
WPZ's Positive Rating Outlook considers expected lower consolidated business risk resulting from the growing fee-based component of its midstream operations as it expands in the Marcellus and other production basins. Also considered are the expected benefits of the proposed dropdown of certain Canadian operations from WMB to WPZ expected to close February 28. WPZ will acquire certain WMB Canadian operations, including an oil sands offgas processing plant, an NGL/olefin fractionation facility and butylene/butane splitter facility, and the Boreal pipeline. WPZ expects to fund the transaction with $25 million of cash, an increase in the capital account of WPZ' GP to enable it to maintain its 2% GP interest, and the issuance of a new class of pay-in-kind units that will be convertible to common units at a future date.
Fourth-quarter 2013 earnings were negatively affected by lost production at its Geismar olefins plant and weak natural gas liquids (NGL) margins. The Geismar plant which has been shut down as the result of a fire, is expected to be operational in June 2014. WPZ has $500 million of combined business interruption and property damage insurance that should significantly mitigate the financial loss. Management currently estimates total uninsured losses to total $83 million, of which $73 million occurred in 2013.
Forward Expectations: WPZ's adjusted 2013 debt-to-EBITDA was approximately 4.0x. Benefiting from the Canadian asset dropdown and associated equity funding, WPZ's leverage could approximate 4.0x or below in 2014.
Favorable Liquidity: WPZ has access to a $2.5 billion revolving credit facility that matures in July 2018 and backstops a $2 billion 'F3' CP program. At Dec. 31, 2013, WPZ had $225 million of outstanding CP. 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 an acquisition. TGPL and NWP have debt-to-cap maximums of 65%. The revolver also includes a change of control clause, limitations on liens, and restrictions on asset sales and mergers.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-- Increased scale and diversity of assets;
-- A greater percentage of revenues generated from pipelines and other fixed-fee assets;
-- Expectations for strong credit measures with sustained adjusted debt-to-EBITDA below 4.0x.
Negative: Future developments that may nonetheless potentially lead to a negative rating action include:
-- Increasing commodity risk;
-- Weaker credit metrics with sustained adjusted debt-to-EBITDA above 4.5x.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
-- 'Corporate Rating Methodology, Including Parent and Subsidiary Linkage' Aug. 5, 2013;
-- 'Scenario Analysis: Lifting the Crude Export Ban' Jan. 23, 2014;
-- 'Rating Pipeline, Midstream and MLPs-Sector Credit Factors' Jan. 13, 2014;
-- 'NGL Pipelines: Northeast Supply Drives New Projects' Dec. 20, 2013;
-- '2014 Outlook: Midstream Services' Dec. 10, 2013;
-- '2014 Outlook: Crude Oil and Refined Products Pipelines' Dec. 9, 2014;
-- '2014 Outlook: Natural Gas Pipelines' Dec. 5, 2013;
-- 'Crossover Credits in Natural Resources' Oct. 31, 2013;
-- 'Credit Considerations for the GP/LP Relationship' Nov. 6, 2013;
-- 'Funding U.S. LNG Export Facilities' Aug. 20, 2013.
Applicable Criteria and Related Research:
Funding U.S. LNG Export Facilities (Credit Issues for MLP and Corporate
Credit Considerations for the GP/LP Relationship
Crossover Credits in Natural Resources - Migration Catalysts 2003-2013
2014 Outlook: Natural Gas Pipelines
2014 Outlook: Crude Oil and Refined Products Pipelines
Scenario Analysis: Lifting the Crude Export Ban (Overall Credit Impact
Limited but Varies by Industry)
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage