Williams Communications Eyes Bankruptcy Filing, Plans Job Cuts
By ELLIOT SPAGAT
Staff Reporter of THE WALL STREET JOURNAL
Williams Communications Group Inc., reversing course, said it may file for Chapter 11 bankruptcy protection to reorganize its $5.16 billion debt.
The Tulsa, Okla., firm said only three weeks ago that it wasn't considering a bankruptcy-law filing or moves that would result in substantial shareholder dilution. After trying to renegotiate its debt with lenders, however, it warned Monday that its restructuring could result in "substantial shareholder dilution."
The news is a blow not only to the telecommunications carrier, but also to energy concern Williams Cos., its former parent company, which has backed as much as $2.2 billion of the telecom company's obligations.
As of 4 p.m. in New York Stock Exchange composite trading Monday, shares of Williams Cos. fell $1.46, or 8.9%, to $14.84 while Williams Communications skidded 29 cents, or 57%, to 22 cents.
Pressure From Lenders
Williams Communications, which spent about $6 billion to build a fiber-optic network, is the latest carrier to come under heavy pressure from lenders after the telecom boom of the late 1990s produced a glut of capacity. Global Crossing Ltd. filed for bankruptcy protection last month, the fourth-largest filing in history. McLeodUSA Inc. also has filed for Chapter 11, and XO Communications Inc. has said its restructuring discussions may result in a bankruptcy filing.
Williams Communications said a Chapter 11 filing that includes a negotiated reorganization plan was among "multiple restructuring options." It said it was forced to consider filing for bankruptcy protection after "certain institutions other than the banks" wouldn't support options that it was considering. It didn't elaborate.
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Williams Communications has been in talks with its bank group about amending its $975 million credit facility and that group last month extended the deadline to Thursday from Jan. 29. It said it recently began talks with noteholders, as well. The telecom concern said it had more than $1 billion in cash as of Dec. 31, enough to fund its business through 2003. As of Sept. 30, Williams Communications had $2.57 billion in senior notes outstanding and $1.4 billion in senior secured notes.
"The banks are likely to think this is a company that can make it for another year or two," but they may worry that they won't get repaid after Williams Communications pays interest on unsecured debt, said Michael Axon, a fixed-income analyst at CRT Capital Group.
Debt Agreements
Williams Cos., also based in Tulsa, has guaranteed $1.4 billion of the telecom company's debt and a $750 million sales-leaseback for a fiber connection between Houston and Washington, D.C. Those triggers, which are part of Williams Communications' debt agreements, kick in if the energy trader loses its investment-grade credit rating or Williams Communications defaults on its debt. The energy trader has been negotiating with lenders to scrap those "triggers."
Mohiko Manabe, a credit analyst at Moody's Investors Service Inc., said the potential bankruptcy filing "is nothing new from our standpoint" because it already is considering the contingent liability in Williams Cos. credit rating.
The telecom company's potential bankruptcy filing makes it more likely that Williams Cos. will accelerate asset sales or issue additional equity, said an analyst at UBS Warburg, Ronald Barone, who cut his estimate of the energy trader's earnings per share this year to $2.10 from $2.50. The news drastically increases chances that the energy trader will be "on the hook" for most, if not all, the $2.2 billion in contingent liabilities, he said.
Williams Communications said it plans to cut "controllable" costs by 25%, which will include work-force reductions. It declined to say how many of its 4,000 employees would lose their jobs.
Write to Elliot Spagat at elliot.spagat@wsj.com
Updated February 26, 2002 |
