Tulsa, Okla.-based optical-network provider Williams Communications Group Inc. (WCGR) gave in and filed for Chapter 11 bankruptcy
protection Monday, despite February statements by
Chief Financial Officer Scott Schubert that any reorganization plan would not include bankruptcy or a substantial dilution of
equity.
The company joins beleaguered competitors like Global Crossing, McLeodUSA and Adelphia Business Solutions in bankruptcy.
The negotiated Chapter 11 filing is intended to reduce the company’s debt by about $6 billion. WCGR said it reached the agreement
with a group that consisted of 90 percent of its bank lenders and an ad hoc committee of bondholders. The company filed the
voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York, and said
it expects to file a plan of reorganization in the near future.
The WCGR’s operating subsidiary, Williams Communications LLC, is not expected to be part of the reorganization process, and the
company said it does not expect the filing to affect domestic or international business operations of Williams Communications.
“After consider all options, it was determined that a Chapter 11 financial restructuring would be the best method to restructure the
holding company’s balance sheet while at the same time protecting the ability of Williams Communications to continue operations
without interruption,” said Howard Janzen, chairman and chief executive officer. “During the Chapter 11 process, Williams
Communications’ operations and its customer relationships will have the opportunity to continue, along with its strong customer
commitment and focus.”
The deal between WCGR and its bank lenders and bond holders is a lock-up agreement. Creditor groups will vote in favor of a plan of
reorganization consistent with the terms outlined in the lock-up agreement. The lock-up agreement will remain in place until July
25, 2002, although the company may obtain an automatic extension to Oct. 15, 2002 if it has filed a plan of reorganization and met
other conditions.
WCGR said the lock-up agreement establishes a framework for a reorganization in which 100 percent of its pre-petition unsecured
claims would be converted into 100 percent of the common stock of the reorganized company. The agreement also requires that Williams
Communications raise at least $150 million through additional debt or equity investment before the approval of the plan of
reorganization in order to facilitate the company’s commitment to prepay $450 million of its bank debt, $200 million of which was
prepaid upon execution of the lock-up agreement.
WCGR’s former parent, Williams Cos. Inc. said late Monday that it is prepared for its former subsidiary’s
bankruptcy filing and has moved to mitigate the effect on its shareholders.
“As previously disclosed, we have already constructively dealt with the two major contingent liabilities related to Williams
Communications Group that would have been triggered by a bankruptcy filing,” said Steve Malcolm, president and chief executive
officer of Williams. “We’ve already written down the receivable from WCGR to approximately 20 cents on the dollar related to the
obligations above. We are assessing whether additional non-cash write-downs will be necessary based on our evaluation of WCGR’s
current prospects and the details of today’s filing.”
Williams said the recorded carrying value of WCGR’s obligations to it is about $455 million (written down from $2.3 billion). Also,
WCGR has an obligation to Williams for the lease of its headquarters building and certain assets like airplanes, furniture and
fixtures. William’s said its current carrying amount of that receivable is $154 million.
“It is not possible to speculate regarding the ultimate resolution of WCGR’s bankruptcy,” Malcolm said. “As one of three major
creditor groups, however, 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.”
