Williams Deal Doubts Drag Energy Transfer to 6-Year Low

  • Energy Transfer hasn't said how it will pay for expansions: BI
  • Yield `surprisingly high' on new debt at Williams subsidiary

Energy Transfer Equity LP, the pipeline partnership that agreed to buy Williams Cos. for $38 billion, tumbled to a six-year low after a Williams affiliate sold expensive debt amid doubt about the deal’s future.

Energy Transfer fell 7.2 percent to $7 in New York, the lowest close since October 2009. The stock is down 49 percent this year. Williams lost 1.8 percent to $15.49. Williams Partners LP, the primary source of cash at Williams, fell 5.4 percent to $16.60.

The declining value of both Energy Transfer and Williams shares has fueled speculation about whether the transaction will actually be completed since Energy Transfer, based in Dallas, offered $43.50 apiece for Williams in September. Energy Transfer has yet to explain how it will finance planned pipeline expansions with weaker balance sheets, according to Michael Kay, an analyst at Bloomberg Intelligence. A unit of Williams Partners sold $1 billion of senior notes Tuesday with a yield to investors of 7.875 percent, according to a company statement.

“Surprisingly high yield,” Tudor, Pickering, Holt & Co. analysts wrote in research published Wednesday. “Deal implies debt markets nervous in the face of incremental commodity meltdown.”

Funding Growth

The new notes will pay off $200 million of debt maturing in April and fund expansion, according to the statement. Standard & Poor’s rated the notes at BBB-, the lowest investment grade, and said it may cut Williams Partners to junk should weak commodity prices lower pipeline volumes or if cash flow slips.

Pipeline owners including Energy Transfer and Williams have been dragged lower with oil and natural gas prices. West Texas Intermediate, the U.S. benchmark crude, hit a 12-year low Wednesday. Natural gas futures rose 1.3 percent to $2.118 after touching a 16-year low in December.

“If the deal does complete, something would have to give,” Bloomberg’s Kay said.

Management Options

Energy Transfer may sell down the majority stake in Williams Partners or waive management fees that might otherwise approach $1 billion, Kay said. But investors question whether Energy Transfer might be better off using its cash to shrink debt and pay for growth at pipeline partnerships it already controls, he said in a report Tuesday.

“Might it fall apart, be restructured, or continue as currently contemplated?” Brian Kessens, a fund manager at Tortoise Capital Advisors LLC, said by e-mail Tuesday. “The current deal spread of 25 percent indicates the market believes one of the former is more likely.”

Vicki Anderson Granado, a spokeswoman for Energy Transfer, had no comment Tuesday. Williams wants to close the transaction “as expeditiously as possible,” the Tulsa, Oklahoma-based company said in a statement after the close of trading on Jan. 15.

Williams agreed to sell itself to Energy Transfer after a nine-month takeover battle. The companies said at the time of announcing the deal that the transaction was expected to close in the first half of 2016. It’s subject to approval from Williams’ stockholders and other closing conditions.

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