Moody's and Fitch Ratings are considering upgrading Williams Cos. Inc. into investment-grade status after the company announced its plan to roll up Williams Partners LP in a $10.5 billion simplification deal.
Williams' Ba2 corporate family rating, Ba2-PD probability-of-default rating and Ba2 senior unsecured ratings are all under review for upgrade at Moody's. The rating agency also downgraded the rating outlooks for Williams Partners and its pipeline subsidiaries Transcontinental Gas Pipe Line Co. LLC and Northwest Pipeline GP to stable from positive. Williams Partners' Baa3 senior unsecured rating and Prime-3 short term rating, as well as Northwest's and Transco's Baa2 senior unsecured ratings, were all affirmed.
Fitch placed Williams' BB+ issuer default rating, or IDR, and BB+/RR4 senior unsecured rating on Rating Watch Positive, while affirming the IDRs of Williams Partners at BBB-, Transco at BBB and Northwest at BBB. The outlook on Williams Partners and its subsidiaries remains positive due to the upcoming positive outlook at Williams.
The deal would result in an improvement in Williams' overall credit profile as the company simplifies its structure and avoids regulated pipeline revenues being hurt by the Federal Energy Regulatory Commission's recent tax allowance ruling, Moody's said in a May 17 note. It would also provide cash tax benefits to Williams.
Moody's will finalize its review of Williams' ratings upon merger closing, scheduled for fall. The rating agency expects to upgrade Williams' senior unsecured ratings to Baa3, the bottom rung of investment grade. "We expect that Williams will continue its strong execution on its growth projects while maintaining consolidated financial leverage and dividend coverage metrics supportive of a Baa3 rating," said Moody's Senior Vice President Pete Speer.
The simplification plan would eliminate the structural subordination, or the lack of a lender's access to the assets of a company's subsidiary until all its creditors have been paid, which is a key driver for the ratings, Fitch said in a May 17 note. Upon deal closing, Fitch plans to consolidate Williams and Williams Partners' IDRs at BBB-, its lowest investment-grade rating, with a positive outlook.