Fitch Ratings has assigned a 'BBB' rating to Transcontinental Gas Pipe
Line Company, LLC's (Transco) issuance of senior unsecured notes. The
notes are to rank pari passu with the pipeline's existing and future
senior unsecured debt. Proceeds are to be used to repay debt and to fund
capital expenditures.
The new notes do not allow Transco to assume, guarantee or become liable
for any debt other than Transco's or a Transco subsidiary. This
provision would prohibit Transco from putting cross-guarantees in place
with Williams Partners L.P. (WPZ; 'BBB-'/Stable Outlook).
Transco is a wholly-owned pipeline operating subsidiary of WPZ. The
Williams Companies (WMB; 'BB+'/Rating Watch Negative) holds a 60%
interest in WPZ through its 58% stake in the limited partnership and the
2% general partnership interest.
KEY RATINGS DRIVERS
Transco has a strong operating and financial profile which is offset by
its structural and functional ties with its parent, WPZ. Fitch rates
Transco one notch above its parent, WPZ.
Transco is one of the nation's premiere interstate natural gas
pipelines, as evidenced by its strong market position, low cost
structure and above average growth in high-demand mid-Atlantic and
Northeast markets. The physical reach of the system allows the pipeline
to compete effectively for incremental volumes in its key markets
through expansions, laterals, and access to shale basins. Its major
customers are utilities and municipalities.
The pipeline's leverage for the LTM ending Sept. 30, 2015 was 1.75x,
down from 1.92x at the end of 2014. Leverage was reduced due to the
pipeline's EBITDA growth. For the LTM, EBITDA was $817 million versus
$743 million in 2014 and $694 million in 2013.
Transco's parent, WPZ, has a 'BBB-' rating which is supported by the
partnership's scale, diversity of assets, as well as geographic
diversity. Over time, WPZ has grown through significant organic growth
spending and the 2014 acquisition of Access Midstream Partners, L.P.
Approximately 90% of WPZ's gross margins come from fee-based revenues
although risks to cash flows still exist. Future growth projects are
focused on assets backed by long-term fee-based revenues. WPZ estimates
that through 2017, 96% of spending will be directed toward fee-based
projects.
Rating concerns for WPZ include the challenging capital market
environment and the partnership's plan for significant spending. Fitch
estimates that WPZ had cash and committed liquidity of approximately
$1.9 billion as of Sept. 30, 2015. WPZ has $375 million of debt
maturities due by the end of 2Q16. WPZ has not provided guidance for
capex since the announced ETE merger with WMB, however, its prior
guidance averaged $3.3 billion a year through 2017 which would require
it to access the capital markets to fund its spending needs even if
capex was significantly reduced.
Like other master limited partnership (MLPs), WPZ's access to the
capital markets is more restricted than in the past when commodity
prices were stronger. With WPZ's high cost of equity, Fitch does not
anticipate that WPZ will access the equity markets until there is
significant improvement in pricing.
Should WPZ's liquidity and capital market access further deteriorate,
WPZ would need to take steps to maintain adequate liquidity at or near
current levels, through capital spending or distribution cuts to
maintain the rating and Stable Outlook. Failure to do so would likely
result in Fitch taking a negative ratings action.
Other concerns for WPZ include significant counterparty exposure to
Chesapeake Energy Corp. (CHK; 'B'/Negative Outlook). Approximately 20%
of WPZ's revenues are from CHK for gathering and processing. Fitch's
rating for CHK was downgraded two notches in December 2015.
Transco is a 9,600 mile interstate natural gas pipeline which originates
in Texas and extends to the New York City region. It also has four
underground storage fields and an LNG storage facility.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for WPZ include:
--Energy Transfer Equity LP's (ETE; BB/Stable Outlook) pending
acquisition of WMB will close as currently proposed including Energy
Transfer's assumption of WMB's debt and the WMB revolver being retired;
--WPZ will continue to operate as a standalone MLP with sufficient
liquidity.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively,
lead to a positive rating action include:
WPZ
--Should Fitch forecast adjusted leverage (Fitch defined) to trend down
to 4.5x or lower on a sustained basis, favorable rating action may occur.
Transco
--Favorable actions would be directly linked to positive rating action
at WPZ.
Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:
WPZ
--Should Fitch forecast adjusted leverage (Fitch defined) of 5.25x or
higher on a sustained basis, negative rating action could occur.
--Reduced liquidity or lack of access to capital markets may also result
in negative rating action.
Transco
--Negative actions would be directly linked to WPZ.
LIQUIDITY
As of Sept. 30, 2015, Transco held no cash on its balance sheet. Transco
can borrow up to $500 million on WPZ's $3.5 billion revolver to the
extent that capacity is available. The revolving credit facility extends
until 2020. After accounting for outstanding commercial paper (CP) and
$503 million outstanding revolver borrowings, WPZ had $1.5 billion of
availability on its $3.5 billion revolver
FULL LIST OF RATING ACTIONS
Fitch rates the following:
Williams Partners L.P.
--Long-term IDR 'BBB-';
--Senior unsecured debt 'BBB-';
--Short-term IDR and CP 'F3'.
Transcontinental Gas Pipe Line Company, LLC
--Long-term IDR 'BBB';
--Senior unsecured debt 'BBB'.
Williams Partners L.P., and Transcontinental Gas Pipe Line Company, LLC
both have a Stable Outlook.
Date of Relevant Rating Committee: 11 January 2016
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Recovery Ratings and Notching Criteria for Non-Financial Corporate
Issuers (pub. 07 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873504
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998065
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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