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Investing.com -- S&P Global Ratings has upgraded the long-term issuer credit ratings of U.S. midstream energy company The Williams Cos . Inc. (NYSE:WMB) and its operating subsidiaries to ’BBB+’ from ’BBB’. The subsidiaries include Transcontinental Gas Pipe Line Co. LLC, Northwest Pipeline LLC, and MountainWest Pipeline LLC. The rating agency also increased its issue-level ratings on WMB and its subsidiaries’ unsecured debt from ’BBB’ to ’BBB+’.
The upgrade comes as a result of the company’s strong credit metrics and continued growth both organically and through acquisitions. WMB ended fiscal-year 2024 with an adjusted EBITDA of about $7.0 billion and leverage of about 4.2x. S&P Global Ratings forecasts that WMB will generate an adjusted EBITDA of about $7.6 billion-$7.7 billion in 2025, mainly due to stable, fee-based contracts and increased volumes across its assets.
The company has several growth projects in the pipeline for 2025 and 2026, including the Ballymore, Shenandoah, and Whale projects in the Gulf of Mexico. It will also bring the Louisiana Energy Gateway and new data center projects online. These fully contracted projects are expected to provide incremental long-term cash flow. The agency expects WMB’s adjusted debt to EBITDA to be approximately 4.0x in 2025.
WMB has completed several significant acquisitions since 2021, supporting its credit quality. These include the Crowheart acquisition for $307 million in December 2024, which consolidated WMB’s interest in the Wamsutter Basin. The company also completed the Discovery (NASDAQ:WBD) acquisition for $170 million in August 2024, increasing its ownership in Discovery to 100%. In addition, WMB completed the Gulf Coast Storage acquisition in January 2024 for $1.95 billion, expanding its natural gas storage footprint in the Gulf Coast region.
S&P Global Ratings believes WMB will continue making tuck-under acquisitions that will modestly expand its leverage. These acquisitions are expected to provide the company with opportunities to realize synergies and increase its size and scale. WMB is also expected to use its excess free cash flow to modestly increase its dividend.
The company’s strong business risk profile is expected to benefit from the rising demand for natural gas along the Eastern seaboard and Gulf Coast regions, particularly due to the increase in LNG exports and datacenter buildout. WMB recently agreed to invest approximately $1.6 billion in a data center project, expected to be completed in the second half of 2026. This project is expected to drive EBITDA growth with a 10-year, primarily, fixed-price power purchase agreement.
S&P Global Ratings anticipates WMB’s consolidated credit measures will remain strong, with adjusted debt to EBITDA of about 3.8x to 4.0x in 2025 before improving further in 2026. The rating agency expects the company to continue making tuck-under acquisitions similar to those it completed over the past few years and to modestly increase its dividend, while maintaining a strong balance sheet.
A negative rating action could be considered if WMB’s adjusted debt to EBITDA remains at or above 4.5x, which could occur if it undertakes a leveraging acquisition or shifts its financial policy. Conversely, a positive rating action could be considered if the company meaningfully lowers its leverage target such that its adjusted debt to EBITDA remains below 3.25x over the long term.
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