Fitch Upgrades Williams Cos to 'BB+'; Outlook Stable.

NEW YORK -- Fitch upgrades The Williams Companies, Inc.'s (WMB) outstanding senior unsecured debt and issuer default rating (IDR) to 'BB+' from 'BB'. In addition, the senior unsecured debt and IDRs of Transcontinental Gas Pipe Line Corp. (TGPL) and Northwest Pipeline Corp. (NWP) are upgraded to 'BBB-' from 'BB+'. The ratings are removed from Rating Watch Positive status where they were placed on March 7, 2006. At the same time, Fitch withdraws Williams Production RMT Co.'s (RMT) 'BB+' senior secured rating and 'BB-' IDR reflecting the retirement of RMT's outstanding debt obligations on April 13, 2006. The Rating Outlook is Stable.

The rating action reflects WMB's substantially de-leveraged balance sheet and continued improvement in consolidated credit metrics, the recent elimination of all direct secured debt obligations from WMB's capital structure, the company's solid liquidity position and limited debt refinancing risk through 2010, the expectation for continued stable cash flow generation from WMB's core natural gas businesses, and the strengthened near-term cash flow profile of WMB's Power segment.

Key risk factors incorporated into WMB's ratings include the commodity price volatility embedded in WMB's growing natural gas exploration and production (E&P) unit and certain phases of the company's midstream business and the largely unhedged nature of WMB's off-balance-sheet power tolling obligations beyond 2010. In addition, WMB management is demonstrating a clear appetite to boost capital spending to further expand E&P and Midstream production capacity at the peak of the commodity cycle. Fitch notes that WMB's near-term capital budget will likely require a modest level of incremental debt financing at WMB and/or Williams Partners, L.P. (WPZ), WMB's publicly traded master limited partnership (MLP) affiliate.

WMB has emerged from its restructuring as a more focused integrated natural gas company with core operations encompassing FERC regulated interstate pipelines (TGPL and NWP), E&P, and midstream gas and liquids services. These businesses should continue to generate a relatively predictable earnings and cash flow stream going forward with potential commodity price volatility in the E&P segment offset by the cash flow stability of TGPL and NWP, and WMB's growing portfolio of fee-based midstream assets. Commodity price risk at E&P is further mitigated by WMB's focus on developing lower risk Rocky Mountain based tight sands and coalbed methane gas reserves.

Although WMB has successfully wound down speculative trading activities, there is longer-term uncertainty associated with Power's sizable tolling contract portfolio. WMB currently has long-term tolling agreements for approximately 7,700 megawatts of generating capacity under which it is obligated to make fixed payments averaging $400 million over the next several years with a total remaining net present value of about $2.5 billion. Importantly, during 2004 and 2005, WMB sold forward additional tolling capacity through 2010 thus ensuring minimizing the near-term cash flow strain at Power. Moreover, Fitch estimates that existing physical power sales contracts, financial hedges and conservatively forecasted merchant sales substantially cover Power's fixed cost structure through 2010.

Since year-end 2002, WMB has decreased consolidated debt by approximately $5.6 billion by deploying cash raised from asset sales and the early conversion of equity-linked securities. At the same time, WMB has expanded the cash flow of its core natural gas businesses, effectively offsetting a good portion of income lost due to asset sales. As a result, consolidated credit protection measures have improved to levels solidly within Fitch's 'BB' targets for diversified energy companies. For the fiscal year ended Dec. 31, 2005, consolidated cash interest coverage approached 3.0 times (x) with total debt/EBITDA dropping to 3.7x. As part of its analysis, Fitch reviewed WMB's prospective cash flow performance under less favorable commodity market conditions, including a scenario envisioning a decline in natural gas prices to the $4.00 per mmBtu range in 2008. Although this price level adversely impacts the long-gas position embedded in E&P, WMB's prospective credit profile remains within parameters for the rating as the stable cash generation of WMB's regulated pipelines combined with various offsetting short gas positions at Midstream and Power compensate for a portion of the resultant earnings decline at E&P.

The 'BBB-' rating assigned to WMB's pipeline subsidiaries reflects NWP's and TGPL's strong individual operating and financial profiles, offset by the structural and functional ties between these entities and their ultimate parent WMB. Both NWP and TGPL participate in WMB's daily cash management program under which each subsidiary makes and/or receives advances from WMB. Operationally, NWP and TGPL are viewed as two of the premier pipeline systems in the U.S. In particular, both systems boast competitive rate structures, captive markets, a high percentage of capacity subscribed long-term contract profiles, and attractive expansion opportunities. Furthermore, stand-alone credit measures at both NWP and TGPL have continued to remain healthy despite higher dividend payments to WMB and moderate growth spending and remain consistent with strong investment grade parameters.

The Stable Rating Outlook reflects Fitch's expectation that WMB's credit and financial profile over the next 12-24 months will remain consistent with its rating even under more onerous operating conditions, including a lower natural gas price environment. Factors leading to potential rating improvement over time would include further de-leveraging and/or a potential transaction or arrangement that would substantially hedge or assume WMB's remaining contractual obligations under its long-term power tolling contracts. At the same time, a return to a more aggressive, debt financed growth strategy or the inability to hedge tolling obligations beyond 2010 would likely place downward pressure on WMB's rating and/or outlook.

The following is a summary of outstanding ratings affected by today's action:

The Williams Companies, Inc.

--IDR and senior unsecured notes and debentures upgraded to 'BB+' from 'BB';

--Junior subordinated convertible debentures upgraded to 'BB-' from 'B+'.

--The 'BB+' senior secured rating previously assigned to WMB is withdrawn.

Williams Production RMT Co.

--Senior secured term loan B withdrawn at 'BB+';

--IDR 'BB-' withdrawn.

Northwest Pipeline Corp.

--IDR and senior unsecured notes and debentures upgraded to 'BBB-' from 'BB+'.

Transcontinental Gas Pipe Line Corp.

--IDR and senior unsecured notes and debentures upgraded to 'BBB-' from 'BB+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.