Credit analyst sees little chance for credit quality progress at Williams

By Ronda Fears

Nashville, Nov. 15 - Until Williams Cos. can find a way to extricate itself from energy trading there is little chance for credit quality improvement, said Carol Levenson, director of research at GImme Credit.

In August, Williams (B1/B+) got a last-minute liquidity reprieve from investment guru Warren Buffett but the company's earnings this week provide little to no hope, the analyst said.

"One thing is clear, until Williams finds a way to extricate itself from its energy marketing and trading business, it's unlikely to be making a credit quality comeback," Levenson said in a report Friday.

"The adjusted $300 million operating loss in [trading] tells most of this tale, as the pipelines and other 'core' businesses performed well in the quarter."

The culprits in trading are market illiquidity, the diminished credit quality of Williams and counterparties and slender spark spreads.

Furthermore, the analyst noted, adjusted EBITDA didn't come close to covering interest expense, which increased by nearly $200 million.

"The Buffett rescue did not come cheap, with the secured loan carrying an interest rate of 20%. Bear in mind this loan was only in place for the last month of the quarter and has to be paid off in July," Levenson said.

"Although the company bought itself some time in August, and at a rich price, it didn't buy a lifetime."

With liquidity at Sept. 30 down to $1.7 billion and no access to the capital markets, she said, Williams will continue to rely on asset sales to meet its obligations.

Williams had $2.4 billion in short-term debt outstanding at the end of the third quarter and maturities through the first quarter of 2004 total $4.1 billion.

The company expects another $800 million to come in the door this quarter from pending sales and additional asset sales of $1-$1.5 billion are contemplated for next year.

"Meanwhile Williams's operating cash flow bleed remains profuse," Levenson said.

"We see little chance of improving credit quality, however, until the cash flow bleeding stops and a solution is found for the EM&T business."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.