Fitch Rates Williams Partners Notes 'BBB'
KEY RATING DRIVERS
Increased Scale and Diversity: WPZ's ratings are supported by the benefits of the Access Midstream Partners (ACMP) acquisition which closed on Feb. 2, 2015, as well as ongoing organic growth projects which continue to increase the scale and diversity of its operations.
High Leverage: For the latest 12 months (LTM) ending Dec. 31, 2014, leverage (defined as debt to adjusted EBITDA) was 6.3x, up from 4.4x at the end of 2013. With expectations for reduced EBITDA in the current year, Fitch projects year-end 2015 leverage to be in the range of 4.75x-5.0x. Fitch forecasts the distribution coverage ratio may remain below 1.0x at the end of 2015. Credit measures for WPZ should strengthen modestly in 2016 as several large organic projects come on line and the benefits of increased fixed-fee revenues are felt.
Also, WPZ's relative exposure to volatile natural gas liquids (NGL) prices should be lower (on a percentage basis) due to the build-out of fee-based pipeline and midstream facilities in the Marcellus and Utica production. ACMP's midstream operations were 100% fee-based and reduce WPZ's commodity price exposure. However, the volatility of the portion of the business that is exposed to NGLs has been very high over the last few months.
WPZ is forecasting 88% of gross margins to come from fee-based arrangements in 2015. Management is also forecasting EBITDA in the range of \$4.3 billion to \$4.6 billion in the current year. Furthermore, growth spending at the master limited partnership (MLP) is expected to remain significant at \$9.3 billion between 2015 and 2017.
Favorable Liquidity: As of Feb. 20, 2014, WPZ's liquidity is sufficient. WPZ has access to a new \$3.5 billion revolving credit facility that matures in February 2020 and backstops a \$3 billion CP program. In addition, a \$1.5 billion short-term credit facility was put in place and extends through August 2015. The new long-term bank agreement was also put in place in February 2015 and replaces a \$2.5 billion facility. Additionally, the CP program was increased from \$2 billion. WPZ had no borrowings under the revolver as of year-end 2014 and CP borrowings were \$798 million.
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 acquisitions of \$25 million or more. TGPL and NWP have debt-to-capitalization maximums of 65%. The revolver also includes a change of control clause, limitations on liens, and restrictions on asset sales and mergers. There are no additional debt maturities until 2017.
Fitch's key assumptions within the rating case for the issuer include:
--WTI oil price that trends up from \$50/barrel in 2015 to \$60/barrel in 2016 and a long-term price of \$75/barrel; and Henry Hub gas that trends up from \$3/mcf in 2015 to \$3.25/mcf in 2016 and a long-term price of \$4.50/mcf consistent with Fitch's published Base Case commodity price deck.
--Significant capex of \$9 billion through 2017 which is supported by fee-based projects.
--Modest leverage reduction in 2015 following the acquisition of ACMP and planned issuance of \$600 million of equity.
Positive: Future developments that may, individually or collectively, lead to a positive rating action include:
--Expectations for leverage (defined as debt to adjusted EBITDA) to return to 4.5x or lower and remain there on a sustained basis to return to a Stable Outlook at the current rating;
--Increased scale and diversity of assets;
--A material reduction in exposure to commodities.
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.