S&P Cuts Ratings for Williams Cos.

Analyst Jeffrey Wolinsky says the company's plans to reduce debt over the next year faces substantial execution risk

On May 28, Standard & Poor's lowered its corporate credit rating on Williams Cos. Inc. to BBB from BBB+ as well as the company's other ratings and those of its subsidiaries. The ratings were removed from CreditWatch, where they were placed with negative implications on Feb. 1. The outlook is negative.

Tulsa, Okla.-based Williams has about $15 billion in outstanding debt.

Although Williams plans to reduce debt significantly over the next year through a combination of asset sales and equity issuances, the plan is subject to substantial execution risk, says analyst Jeffrey Wolinsky. The net effect of meeting liquidity requirements and the assumption of the $1.4 billion of debt from Williams Communications Group Inc. (WCG) caused deterioration in the coverage ratios.

Prior to the announcement of Williams's plan to reduce debt, the adjusted after-tax cash flow interest coverage is low for a BBB rating, with minimum and average ratios of 3 times and 3.1 times, respectively, for 2002 to 2004. The coverage assumes the consolidation of debt at Williams' subsidiaries and imputed interest for the debt-like quality of the tolling agreements and capital adequacy obligations associated with trading operations.

The risks are somewhat offset by the fact that management has stated its commitment to stabilizing the existing ratings. Management has proven to be very proactive in enhancing the company's liquidity position during a time of duress, following the market turmoil caused by the Enron Corp. bankruptcy. This proactive response is expected to continue as management reduces leverage over the next year.


Although the current financial ratios are low for the rating, the negative outlook reflects the execution risk in reducing leverage to attain adjusted funds from operations to interest coverage ratios commensurate with a BBB rating, while maintaining the current quality of assets.

Standard & Poor's will periodically evaluate the company's progress and assess whether the rating is appropriate. If the company is able to achieve its goal, the ratings could be affirmed at stable. However, if substantial progress toward the goal has not been made by year-end 2002, the ratings could fall by one notch.

From Standard & Poor's RatingsDirect

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