Bullish indicating open at $55-$60, IPO prices at $37
Investing.com -- Moody's Ratings has updated the outlook of The Williams Companies (NYSE:WMB), Inc. (Williams) from stable to positive. The agency also confirmed the Baa2 senior unsecured notes rating and Prime-2 Commercial Paper (CP) rating of the company. Williams' subsidiaries, Transcontinental Gas Pipeline Company, LLC (Transco), Northwest Pipeline LLC (Northwest), and MountainWest Pipelines Holding Company (MountainWest), have also seen their outlooks revised to positive from stable, with their Baa1 senior unsecured ratings affirmed.
The shift in outlook is linked to Williams' commitment to maintaining a leverage range of 3.5x to 4x while also delivering consistent earnings growth of 5% to 7%. This strategy, along with the execution of the company's 2025 growth plan, could potentially lead to an upgrade to a Baa1 rating, according to John Thieroff, a senior credit officer at Moody's.
Williams' positive outlook is based on the company's potential for significant growth in 2025 and 2026, all while maintaining a leverage level consistent with a Baa2 rating. The Baa2 senior unsecured rating and P-2 short-term rating are supported by Williams' large and geographically diverse asset base, moderate debt leverage, and strong dividend coverage. These ratings are further supported by the stability of its regulated interstate pipeline operations and its largely fee-based gathering and processing (G&P) assets.
In March, Williams announced a $925 million increase in its 2025 capital budget as part of a $1.6 billion project to provide onsite natural gas and power generation to a hyperscaler in New Albany, Ohio. The project, expected to be completed in the second half of 2026, will cause Williams to outspend cash flow by about $1 billion in 2025. This project represents a new focus for the company and is expected to generate strong returns.
Despite the increase in spending, Williams' leverage is expected to remain near 4x at the end of 2025, with future projects likely to be financed in a way that keeps leverage well below 4x. Williams' ability to generate strong cash flow, supported by moderate leverage and conservative financial policies, should help the company manage future carbon transition risks.
Williams is expected to maintain excellent liquidity, largely based on availability under its committed revolving credit facility, which expires in October 2027. As of the end of 2024, following its January 2025 $1.5 billion notes issuance, Williams had full availability under its credit facility and no commercial paper outstanding.
Williams' subsidiaries, Transco, Northwest, and MountainWest are rated Baa1, one notch above Williams' rating, reflecting the regulated nature of their operations, their supply diversity and growth potential. These pipelines do not guarantee any of Williams' debts, and their debts are not guaranteed by Williams. Each pipeline's credit profile could support a higher rating, but ratings have been limited to one notch above Williams' rating due to Williams' controlling ownership.
Williams' ratings could be upgraded if the company maintains consolidated Moody's-adjusted debt to EBITDA below 3.75x, while maintaining dividend coverage greater than 1.5x. Conversely, a downgrade could occur if adjusted consolidated debt/EBITDA exceeds 4.75x, dividend coverage falls below 1.0x, or there is a significant change in business mix that results in materially higher volume or commodity price risk.
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