Fitch Rates Williams Partners Notes 'BBB'
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' rating to the Williams Partners L.P.'s (WPZ) proposed offering of senior notes. Note proceeds will be used to repay outstanding commercial paper (CP), to fund capital expenditures and for general partnership purposes. The Rating Outlook is Stable.
The rating action considers the proposed acquisition by The Williams Companies, Inc. (WMB) of the remaining 50% general partner (GP) interest and 55 million limited partner (LP) units in Access Midstream Partners (ACMP) and eventual plans to merge WPZ and ACMP. The Rating Outlook for WPZ is Stable.
Following its acquisition of ACMP units, WMB proposes to merge the two master limited partnerships (MLPs) in a unit-for-unit exchange at a ratio of 0.85 ACMP units per WPZ unit. The proposal includes a make-whole option for WPZ unitholders to compensate for a lower expected unit distribution post-merger. The proposed merger will be subject to negotiation, review and approval by conflicts committees of each partnership's board of directors and approval by WPZ unitholders.
On June 15, 2014, WMB announced it has accelerated its plan to contribute the remainder of its assets currently reported within its Williams NGL & Petchem Services segment to the partnership level. The dropdowns are expected to be completed in late 2014 or early 2015.
KEY RATING DRIVERS:
Increased Scale and Diversity: WPZ and WMB's ratings are supported by the benefits of the ACMP acquisition and ongoing organic growth projects which continue to increase the scale and diversity of its operations. WMB's 2015 consolidated EBITDA is expected to exceed $5 billion. Also, WMB's and WPZ's relative exposure to volatile natural gas liquids (NGL) prices is lessening due to the build-out of fee-based pipeline and midstream facilities in the Marcellus and Utica production basins and through the operation of WPZ's Geismar olefins production facility. ACMP's midstream operations are 100% fee-based and will further reduce commodity price exposure.
Of some concern is the status of the rebuild and expansion of WPZ's Geismar olefins plant that is now targeting a late July startup which was delayed from a previous expected startup in late June. In addition project capital spending estimates will increase and business-interruption recoveries may fall short of prior expectations. As a result, WPZ has lowered it 2014 financial guidance.
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 should approximate 4.0x in 2014, although the financial impact of the Geismar plant startup delay could push leverage metrics modestly higher.
Favorable Liquidity: WPZ has access to a $2.5 billion revolving credit facility that matures in July 2018 and backstops a $2 billion CP program. At March 31, 2014, WPZ had no CP outstanding. Transcontinental Gas Pipe Line Company, LLC (TGPL) and Northwest Pipeline LLC (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. Pipeline affiliates 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 a 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 leverage below 3.75x.
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--Increasing commodity risk;
--Extended outages at the Geismar not covered by insurance;
--Weaker credit metrics with sustained leverage above 4.5x.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Corporate Rating Methodology, Including Parent and Subsidiary Linkage' May 28, 2014;
--'Non-Traditional MLP Assets; Changing Mix, Changing Risk' May 6, 2014;
--'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.