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Williams Goes Into Chapter 11

Light Reading
News Analysis
Light Reading
4/23/2002

Williams Communications Group filed for bankruptcy protection in a New York court today (see Williams Negotiates Chapter 11) -- letting down shareholders who were assured only a couple of months ago that this would never be necessary.

The firm is the holding company of ailing carrier Williams Communications, which has been struggling with cash flow problems for months now.

Williams has roughly $6 billion in debt it can't service. It says it's been negotiating with its top creditors and has gotten them to delay any action to retrieve their funds until the carrier comes up with a restructuring plan for them to vote on. That should happen by July 15, 2002, though if the carrier meets certain unspecified conditions, the vote may be extended until October 15, 2002.

Williams's leading creditors include the Bank of New York, to which Williams owes $2.53 billion, and its original parent Williams Companies, which spun off Williams Communications last year and has a $2.27 billion claim with the carrier. There is also a wide assortment of bondholders and a $1.3 million claim by the New York Stock Exchange waiting in the wings.

Williams says the filing issued by the holding company won't affect the ongoing provision of day-to-day domestic and international services by the operating carrier. "It's an important distinction that needs to be made," says spokeperson Deborah Trevino.

Analysts say Williams can't hide behind such bravado anymore. "In effect, they're saying to customers, please don't stop buying from us, even though we're in bankruptcy," says Chris Roberts, senior research analyst for Tejas Securities Group Inc. He thinks the upshot of Williams's filing today will be "100 percent ownership by the bondholders, zero for the shareholders."

Roberts isn't alone in his assumption. Back in March, a report by the Optical Oracle, Light Reading's subscription service, stated: "Management tried to convince investors that a restructuring will not materially dilute current equity shareholders... But this is implausible, since every other such restructuring in the telecom services sector has diluted equity investors to nearly nothing."

What happens once all parties reach an agreement on the reorganization of Williams Communications' debt isn't yet clear. The company could be sold, or it could issue a new round of shares on the public markets.

Meanwhile, Williams Communications shareholders have started suing (see Williams Slapped With Lawsuit). Sources say the leading bondholders are likely to fight among themselves as well, although in a statement today, Williams Companies CEO Steven Malcolm said: "Williams plans to continue to participate in constructive dialogue with the other parties in the hopes that WCGR can work through and emerge from the bankruptcy process in a fashion that yields the maximum possible recovery."

Today's filing was no surprise: Williams is only the latest of a string of unfortunate carriers (see Carrier Bankruptcies in Full Bloom). The handwriting's been on the wall for some time, despite ongoing denials and protestations by Williams Communications executives.

Back in February, for instance, the financials looked alarming and talk of bankruptcy surfaced, even though Williams Communications CFO Scott Schubert denied that the carrier would ever need to go to bankruptcy court (see NSS Names CEO). In March, the New York Stock Exchange barred the carrier from further trading because shares had fallen below a penny for more than 30 days (see NYSE Boots Williams Comm).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.

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GW Pearson
GW Pearson
12/4/2012 | 10:32:34 PM
re: Williams Goes Into Chapter 11
Down the road a bit, Chap-11 may turn out to have been, overall, a good thing for Wil-Com and it's customers.
fiber_diet
fiber_diet
12/4/2012 | 10:32:31 PM
re: Williams Goes Into Chapter 11
Does it seem plausible that say Williams emerges from bankruptcy and restrustures its debt that Williams will be at a competitive advantage over the other carriers? Then this being the case, in order for other carriers to compete, wouldn't they be wise to do the same to level the playing field?

Alternately, say Williams is focred to sell out at say 10c on the dollar. Wouldn't someone be acquiring a cheap entry cost from Williams to compete with the other debt loaded carriers?
PantomineHorse
PantomineHorse
12/4/2012 | 10:32:28 PM
re: Williams Goes Into Chapter 11
"Does it seem plausible that say Williams emerges from bankruptcy and restrustures its debt that Williams will be at a competitive advantage over the other carriers? Then this being the case, in order for other carriers to compete, wouldn't they be wise to do the same to level the playing field?"

This is the biggest fear -- that the industry is caught in the type of downward spiral you are alluding to.

No capacity (supply) reduction, since these are all Chapter 11 reorgs. Competition -- not reduced. Absolutely no pricing power available.

Having worked on behalf of mid-to-large enterprises negotiating long-term contracts with carriers, the story is actually worse than what is commonly portrayed.

Where's the legislative branch rewriting industry rules? What happened?

It'll be interesting to see how all this plays out.
zweisel
zweisel
12/4/2012 | 10:32:27 PM
re: Williams Goes Into Chapter 11
Sure, and the screwed shareholders will rally behind this company and give them their money. Chapter 11 is NEVER a good thing. Period.
srh
srh
12/4/2012 | 10:32:24 PM
re: Williams Goes Into Chapter 11
>Does it seem plausible that say Williams emerges >from bankruptcy and restrustures its debt that >Williams will be at a competitive advantage over >the other carriers?

Take a look at their 10-K, even if their debt payments (around $600K/year) were erased, Williams still lost money on their operations.

Also note that Williams after raising and spending over $8.5B, they declared $3B of these investments as "impaired" at the end of the year. There is a real question of what is there is at all useful, and if it can it be operated profitably, even if you get it "for free".
fiber_diet
fiber_diet
12/4/2012 | 10:32:21 PM
re: Williams Goes Into Chapter 11
When you look at what has transpired over the last two years, you will see that bandwidth is nearly free and continues to get cheaper.

Then, you have the wireless folks who are giving away nearly unlimited minutes which includes long distance. This has probably put a dent in the carriers revenue stream.

As suggested earlier, there is just way to much capacity available. But, I also doubt we will see anything in the nearterm that would allow carriers to RAISE prices either.
optical_man
optical_man
12/4/2012 | 10:32:19 PM
re: Williams Goes Into Chapter 11
Fiber,
I'm still at a loss to rationalize paying $50-70.00/month for unlimited wireless minutes and calling it free.
I I use 400 minutes and divide by $50.00 that pretty much equals what my ATT bill would be.
I don't consider 50.00 to be free, just semi-hidden.
optical_man
optical_man
12/4/2012 | 10:32:19 PM
re: Williams Goes Into Chapter 11
Author: fiber_diet Number: 2
Subject: Question about remaining carriers Date: 4/23/2002 7:57:10 PM
Alternately, say Williams is focred to sell out at say 10c on the dollar. Wouldn't someone be acquiring a cheap entry cost from Williams to compete with the other debt loaded carriers?

2 issues w/ buying for 10cents on the dollar. The creditors will 1) want you to assume all the outstanding debt, and if you or anyone else won't agree to that, then the creditors will ask for liquidation.
billy_fold
billy_fold
12/4/2012 | 10:32:19 PM
re: Williams Goes Into Chapter 11
I seriouly doubt that Howard Janzen and Matt Bross and the rest of the crew have a clue how to run a carrier. (How many engineers does it take to turnup a SONET LTE?, huh Howard?) (He might be able to tell how to change out a pipeline valve.)

Regarding Chapter 11, I for one will never own Williams Comm stock again. You know what they say, "Fool me once...."

billy
fiber_diet
fiber_diet
12/4/2012 | 10:32:15 PM
re: Williams Goes Into Chapter 11
Long distance is included in your wireless plan. So you are getting it essentially free. This is something you could not get 5 years ago. Also, look at the number of minutes you are getting today vs 5 years ago. I think the Sprint plan is now up to around 4000 minutes including long distance for $39/month. I saw another plan/service which now included web browsing as part of their standard service.

My point was that the prices are plunging and long distance is included. I did not say bandwidth is free. My guess is you will continue to see 'bonus' minutes and additional services like web browsing included. Since long distance is included, what does this mean for AT&T who once relied heavily on long distance revenue?
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