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‘Anti-Enron’ Wobbling After Collapse

June 16, 2002

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TULSA, Okla. (AP) _ Williams Cos. executives are going to great lengths to stress how different their company is from Enron Corp., even branding themselves the ``anti-Enron.″

But neither their efforts nor the contrast could spare the Tulsa-based firm from the aftershocks of history’s largest corporate bankruptcy.

A year ago, Williams was earning handsome profits from long-term contracts managing risks in deregulated power markets. It had successfully spun off its second telecommunications subsidiary in six years. Shares were trading at $38.

But now, the stock has fallen more than 80 percent to a six-year low as investors’ confidence in the entire energy sector has evaporated and federal regulators question the company’s energy trades. Rating agencies have lowered Williams’ credit to the brink of junk. Friday, shares were down 40 cents, or 5.16 percent, to close at $7.35 in trading on the New York Stock Exchange.

Making matters worse, the bust came just as its former telecom subsidiary filed for bankruptcy, triggering Williams’ obligation to assume $2.2 billion of Williams Communications Group debt.

``They have bad luck, bad timing, bad everything,″ said John Olson, an analyst with Sanders Morris Harris in Houston. ``The Enron collateral damage has turned the last eight months into a near death experience.″

In response, Williams said a week ago that it’s slashing its trading business, which generated about 50 percent of last year’s operating profits. The announcement placed an unspecified number of jobs on the block and a drag on projected earnings.

``Good companies adapt to market realities,″ chairman, president and chief executive Steve Malcolm said.

The job cuts will be made through both layoffs and attrition, said company spokesman Jim Gipson. Williams employs about 12,400 people, including 865 in energy risk management services.

The trading cutback comes after a previously announced plan to bolster the balance sheet by $8.7 billion through asset sales, reductions in capital expenditures and equity issues. It is also seeking a financially stronger partner for its trading business.

Even so, Moody’s Investor Service and Standard & Poor’s recently downgraded Williams’ $16 billion debt to their lowest investment grade ratings, Baa3 for Moody’s and BBB- for Standard & Poor’s.

Jeffrey Wolinsky, a Standard & Poor’s credit analyst, said the Williams Communications debt is still hurting the company’s credit. Also, Williams raised cash by selling revenue-producing assets, which weakened its portfolio, he said.

``The cut in risk management is credit positive, but in and of itself, it doesn’t move the rating or outlook,″ Wolinsky said. ``To be solid, they need to reduce debt by about $3 billion.″

The reduced credit ratings could force Williams to promise cash or other assets as collateral for its long-term contracts, thereby increasing the cost of doing business and making it harder to sign natural gas and power deals.

Williams Communications’ April Chapter 11 filing, which came less than a year after the spinoff, left Williams with more than leveraged finances.

The telecom’s shareholders, whose equity would be wiped out under a prearranged bankruptcy plan, and its creditors are accusing Williams of spinning the company off with too high a debt load.

Shareholders have filed a class action lawsuit, and bondholders, who would share the post-bankruptcy company with Williams, want to diminish Williams’ claims to the emerging company’s assets.

The Federal Energy Regulatory Commission has asked Williams and its rivals to disclose whether the companies engaged in questionable energy trades in California.

FERC also asked for revelations of any ``round-trip″ trades, when a company sells power to another and then immediately buys it back at the same price.

Williams acknowledged that some of its California trades resembled those Enron allegedly used to manipulate prices during the state’s energy crisis, but they did not reflect a strategy. Williams has admitted to a small number of ``round-trip″ trades.

Williams said that neither trades affected revenues because of its differences with Enron: Williams conducts few trades in the short-term markets the Houston trader used, and it accounts its trades by their smaller net values instead of the higher gross figure.

However, competitors, including Minneapolis-based Xcel Energy and Oregon utility PacifiCorp, have implicated Williams in their FERC filings.

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