The Williams Communications Group, the troubled provider of broadband network services, said yesterday that it was looking to restructure its debt obligations and that it might seek Chapter 11 bankruptcy protection from its creditors.
Several weeks ago, Williams said that it was not considering filing for Chapter 11. But the announcement yesterday did not surprise analysts or investors.
"The market has been expecting this for a while," said Timothy K. Horan, an analyst at CIBC World Markets.
Williams Communications has $5.2 billion in outstanding debt, including about $2.4 billion in notes and other obligations owed to the Williams Companies, the energy services concern that spun off Williams Communications last year.
Williams Companies has guaranteed the notes by agreeing to issue shares of its common stock in the event of a default by Williams Communications.
Last month, Williams Companies said that it would delay release of its final, audited fourth-quarter and full- year statements for 2001 until the extent of its obligations to Williams Communications debtholders had been determined.
Jim Gipson, a Williams Companies spokesman, said that the announcement from Williams Communications did not clarify what steps his company would need to take.
The Williams Communications statement "suggests that something is going on," Mr. Gipson said, "but we still don't know what that is."
Mr. Gipson said he hoped that Williams Companies would be able to report its fourth-quarter and year- end results before March 8, when a meeting with Wall Street analysts has been scheduled.
On the New York Stock Exchange yesterday, Williams Communications closed at 22 cents, down 29 cents. Williams Companies fell $1.46, to $14.84.
Scott E. Schubert, chief financial officer of Williams Communications, said the company had interest payments of $500 million this year. A payment on $2.5 billion worth of unsecured bonds is due on April 1.
In a statement, Williams Communications said the restructuring options it was considering could potentially result in substantial shareholder dilution. As part of the process, the company said it planned to lower costs by 25 percent, cuts that would include reductions in its work force.
Williams Communications employs about 4,000 people worldwide.
As of the end of last year, Williams Communications had $1 billion in cash. The company has remained current on its interest payments.
Ratings agencies, however, expect that condition to change.
Yesterday, the Standard & Poor's Corporation cut its rating on Williams Communications debt to CC, from CCC+, a level just above default status.
Michael Tsao, an analyst at Standard & Poor's, said the downgrade was "more of a formality."
In mid-January, S.& P. sent out an alarm when it lowered its ratings on Williams Communications to CCC+ from B.
"When a company is in CCC territory there is a likelihood of bankruptcy filings," Mr. Tsao said. "That is a pretty good indication we don't have confidence in the business. And nobody in the business is talking about an economic turnaround."
Williams Communications, which sells space on its network to telephone companies and data-service providers, had a fourth-quarter loss from continuing operations of $40.8 million and sales of $330.3 million.
SBC Communications Inc., the nation's second-largest telephone company, is its largest customer. SBC also owns about a 4 percent equity stake in Williams Communications.
"SBC is much more important to Williams than Williams is to SBC," Mr. Tsao said.
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