Williams to sell $1 billion mandatory convertible preferreds

New York, Dec. 19 - The Williams Cos. Inc. will sell $1 billion of mandatory convertible preferreds early in 2002 as part of measures announced Wednesday to strengthen its balance sheet.

No further details of the planned issuance were disclosed.

The convertible preferreds are a component of measures the Tulsa, Okla. energy company intends will "further solidify its investment-grade credit rating."

"We believe both our business platform and strategy are as solid today as they were six months ago, and we have historically met every performance measure required by debt rating agencies to remain an investment grade company,"' said Steve Malcolm, Williams' president and chief operating officer, in a news release.

"But as we all know, there is a new reality in financial markets regarding our sector of the energy industry," he said. "Today's steps show that we are being responsive to that sentiment as we continue to execute on the balanced growth strategies for our considerable suite of physical assets, while offering our customers an array of services to manage their price risk and certainty of supply."

In addition to the convertible preferreds, Williams said it is cutting capital spending in 2002 by $1 billion or 2002, with the cut split between regulated and unregulated infrastructure projects; selling non-core assets with expected proceeds of $250 million to $750 million during 2002; and beginning action to eliminate ratings triggers in "the limited number of Williams financings" that include them. The company will also likely take a $120 million to $170 million charge in the fourth quarter of 2001 related to its soda ash facility in Colorado.

Williams said deal flow remains "robust" and has increased since the Sept. 11 terrorist attacks and Enron Corp.'s bankruptcy. But some transactions expected to close in the fourth quarter have been delayed.

Nonetheless Williams expects to achieve its previously announced target of $2.40 earnings per share for 2001 on a recurring earnings basis.

Costs or restructuring the company's capitalization and the slower economy may result in a reduction of the year-on-year earnings growth target to 12% to 15% from the current 15%, Malcolm added.

Following the anouncement, Moody's Investors Service confirmed Williams ratings, including its Baa2 senior unsecured rating. The outlook remains stable, Moody's added.

"This debt reduction plan will quickly address Moody's concerns about leverage that has crept up in recent years, and provides for future equity to support its riskier business profile," the rating agency commented.

Because of the mandatory conversion, Moody's said it will view the $1 billion of convertible preferreds as permanent capital although the rating agency noted that until conversion Williams will need to cover the additional fixed charges.

Moody's said Williams has more than $2 billion of on- and off-balance sheet financing with ratings triggers. About half is linked to a share trust financing for Williams' former telecommunciations subsidiary, Williams Communications Group, that was spun off earlier in the year.

There are also triggers with financing that are treated as minority interest on the balance sheet but which Moody's believes have debt attributes.

"WMB's plan to eliminate those rating triggers stabilizes its credit quality, because such rating triggers could worsen a company's liquidity or financial position at a time when its credit is faltering," Moody's commented.

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