Williams Goes Into Chapter 11
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
Editor's Note: Light Reading is not affiliated with Oracle Corporation.