Williams (WMB) and Williams Partners LP (WPZ) Monday afternoon said they have agreed to an incentive distribution rights (IDR) waiver transaction worth about $11.4 billion, bolstering WPZ's credit rating and lowering its cost of capital. WMB also said it has identified further noncore assets to be sold and announced a public offering of 65 million common shares.
WMB's economic general partner interest is to be converted to a non-economic interest in exchange for 289 million newly issued WPZ units. Following the IDR waiver, WMB will hold about 660 million WPZ common units, representing about 72% of those outstanding. WMB said it also expects to purchase newly issued common units of WPZ for $36.08586/unit, funded with equity issuance.
"The improvement of Williams Partners' cost of capital and simplified organizational structure will better align GP [general partner] and LP [limited partner] interests as well as solidify Williams Partners' investment-grade credit ratings," said WMB CEO Alan Armstrong.
Effective with the quarterly distribution for the quarter ending March 31, WPZ expects to pay a quarterly distribution of 60 cents/unit ($2.40/unit on an annualized basis), a reduction of approximately 29% from WPZ's expected fourth quarter 2016 distribution of 85 cents/unit ($3.40/unit on an annualized basis). WPZ expects distribution growth of 5-7% annually over the next several years, it said
WMB said that effective with the quarterly dividend to be paid in March, it expects to pay a quarterly dividend of 30 cents/share ($1.20/share on an annualized basis), an increase of 50% above the dividend paid in December. WMB said it expects dividend per share growth of 10-15% annually over the next several years.
"As a result of the measures announced today, Williams expects that Williams Partners will not be required to access the public equity markets for the next several years," the company said. In addition, the transactions result in debt reduction at Williams Partners and a meaningful increase in its cash coverage ratio to approximately 1.2 times in 2017 and maintenance of strong coverage in excess of 1.1x thereafter."
The IDR waiver is effective immediately and is not subject to any further conditions or approvals.
WMB said its shareholders and WPZ unitholders would both benefit from a strengthened credit profile at WPZ. It said the transactions have been reviewed with credit rating agencies and it expects a positive effect for WMB and WPZ.
"In addition, maintaining Williams Partners as a strong, separate entity provides ongoing strategic and financial flexibility to Williams, enabling it to capitalize on future opportunities to grow both organically and inorganically," the company said.
Besides previously announcedplansto sell its Geismar Olefins Plant in Louisiana, WMB also said Monday it has identified other noncore assets whose sale along with that of Geismar could raise more than $2 billion after tax.