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 January 19, 2016 - 1:11 PM EST
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Fitch Rates Transco's Senior Unsecured Notes 'BBB'

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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Fitch Ratings
Primary Analyst
Kathleen Connelly
Director
+1-212-908-0290
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Peter Molica
Senior Director
+1-212-908-0288
or
Committee Chairperson
Michael Weaver
Managing Director
+1-312-368-3156
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com


Source: Business Wire (January 19, 2016 - 1:11 PM EST)

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