Williams: Blowing Wind?

Williams Communications Group (NYSE: WCG), which reported last week that its banks had warned of a possible default on its credit agreement, announced today that it expects its first-quarter revenues to rise at least 20 percent compared to the same period last year -- to a range between $328 million and $347 million. This is below analyst consensus expectations of $367.5 million in revenues, according to research firm Thomson Financial Securities Data/First Call.

While the anticipated revenue increase might reassure some that Williams isn’t the next greenfield backbone carrier to go belly-up, many observers say all bets are off until February 25, when the company is scheduled to submit a restructuring plan for its balance sheet.

"I wouldn’t consider anything they say valid before then,” says Crédit Lyonnais Securities Inc. analyst Rick Grubbs. “They’ve even created some new metrics... 'net of [proceeds from] assets sales,' which is completely irrelevant.”

The only thing that matters now, Grubbs says, is for the company to get rid of its $5.2 billion debt.

Other analysts go easier on Williams. John F. Bright of Johnson Rice, says that he feels the management is being upfront with investors. “In uncertain times, it’s good for management to continuously communicate with the investment community.” This, he says, is what Williams is doing.

On today’s conference call, Williams executive vice president and CFO Scott Schubert reiterated last week's claims that the company is not in default. He blamed uncertainties in the overall market, such as the recent bankruptcy filings by Global Crossing Ltd. (NYSE: GX) and McLeodUSA (Nasdaq: MCLD), for the banks' distrust of the company.

“We do not believe that we’re in default,” he said, “and we’d defend ourselves vigorously if that claim had actually been made.”

Schubert said that the goal stated by the company last week remained: “to successfully execute a [restructuring] plan without needing to seek bankruptcy court protection, or require substantial dilution of our current equity shareholders.” However, he said, “We can not ensure success regarding our stated goal.”

If Williams is, in fact, not in default, observers say it might have a chance to survive. If it is, however, most say that the company doesn’t have a prayer.

“You can’t say zero chance,” says Grubbs, “because mathematically they’re still in the game. But from a probability standpoint... Now, if the banks turn around and say, ‘You guys aren’t in default; we aren’t going to call the loan,’ then maybe they have a chance.”

For the first quarter of 2002, Williams said it expected network revenues, excluding dark fiber sales, to increase about 20 percent year over year, to a range between $285 million and $300 million. Emerging markets revenues are expected to range from $43 million to $47 million for the quarter, rising about 6 percent compared to the same quarter last year.

Network EBIDTA (earnings before interest, taxes, depreciation, and amortization and other adjustments) for the quarter is targeted to range between a loss of $10 million to breakeven, while emerging markets EBITDA is expected to be a loss of between $9 million and $11 million.

For the full year of 2002, the company announced that, compared to 2001, it anticipates its network segment revenues to grow 15 to 30 percent, and its emerging market segment revenues to rise 25 to 40 percent.

The company expects network to be EBITDA positive on an operating basis for the full year, and it's targeting emerging markets to be operating EBITDA positive on a run-rate basis by year-end.

For 2002, Williams expects net capital expenditures ("net of proceeds from asset sales") to be less than $100 million.

In trading today, Williams stock dropped a penny (1.47%) to 67 cents a share. The company’s shares have fallen 60 percent in the last two weeks.

— Eugénie Larson, Reporter, Light Reading

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