Williams boosting balance sheet; may cut earnings target

Energy trader and pipeline operator Williams Cos. Inc. Wednesday said it will cut 2002 capital expenditures by $1 billion to boost the balance sheet and may reduce earnings growth targets because of the slowing economy and other factors. The Tulsa, Okla., energy company said the measures were intended to help keep its investment grade credit rating.

Dec 19th, 2001

Kate Thomas
OGJ Online Staff

HOUSTON, Dec. 19 -- Energy trader and pipeline operator Williams Cos. Inc. Wednesday said it will cut 2002 capital expenditures by $1 billion to boost the balance sheet and may reduce earnings growth targets because of the slowing economy and other factors.

The Tulsa, Okla., energy company said the measures were intended to help keep its investment grade credit rating. Wednesday Moody's Investors Service confirmed Williams ratings on about $13 billion of debt and said the outlook was stable. Moody's also confirmed the debt rating of Williams Communications Group Note Trust, a third-party special purpose vehicle to which Williams has a contingent obligation.

Concerns about debt ratings and funding of trading operations have prompted El Paso Corp., Dynegy Inc., and Mirant Corp. to take steps to shore up their balance sheets following the unexpected collapse of Enron Corp., the country's largest energy trader.

Williams Pres. Steve Malcolm told New York financial analysts the measures reflected "a new reality in financial markets regarding our sector of the energy industry." He said action taken by Williams shows the company is being responsive to that sentiment.

Malcolm said market uncertainty and a slower economy could cause the company to reduce its 2002 earnings target to 12-15% from 15%. While not a certainty, Malcolm said he believes Williams will achieve the previously announced 2001 earnings target of $2.40/share, although uncertainty about the energy merchant business has delayed closings of deals in the fourth quarter.

"We believe today's market environment is a short-term issue and that we ultimately will see stepped-up deal closure," he said.

The 25% reduction in proposed 2002 capital spending likely will be split between regulated and unregulated infrastructure projects, Malcolm said. Other measures the company expects to take include issuing $1 billion in mandatory convertible preferred securities early in 2002.

Sales of noncore assets is expected to raise $250-$750 million. Williams said it also will likely recognize a fourth quarter 2001 loss of $120-$170 million on a soda ash facility in Colorado because of operational start-up problems.

Jack McCarthy, chief financial officer, said Williams has about $206 million in off-balance sheet project debt. He said the company has about $1.4 billion in contingent liability that includes a so-called ratings trigger, which can result in accelerating the maturity of the debt, in the event of a downgrade in a rating by the credit rating agencies.

Moody's said it would take triggers into consideration in evaluating companies' creditworthiness in the future, after a downgrade triggered the maturity of billions of dollars in debt at Enron. Williams said it will initiate action to eliminate the ratings trigger.

Bill Hobbs, CEO of Williams Energy Marketing & Trade, said deals are becoming more asset intensive and taking longer to close in the wake of Enron's collapse, but the market is continuing to function.

More in Companies