Williams Communications Group May File Bankruptcy

Williams Communications Group Inc. said Monday that it may seek bankruptcy protection, a move that could leave its former parent company on the hook for $2.6 billion of the telephone-and-data network operator’s costs.

The company, facing an estimated $500 million in interest payments this year, said its lenders extended a deadline to submit a debt-reduction plan. Williams Cos., a natural gas pipeline owner that spun off the network operator in April, has guaranteed a portion of the former unit’s debt.

Williams Communications said it is considering a plan that may wipe out shareholder equity, lower costs by 25% and include job cuts. The company racked up $5.2billion in debt building a fiber-optic network in the 1990s amid an expansion frenzy by rivals such as Global Crossing Ltd. and PSINet Inc., both of which filed for Chapter 11 as demand fell short.

“In this kind of environment where there is no equity value, and capital markets are closed to the company, [bankruptcy] becomes the most viable option,” said Eric Misenheimer, who manages $400million of bonds at Northern Trust Corp. He doesn’t hold Williams Communications debt.

Williams Communications bonds fell 7 to 15 cents on the dollar, traders said.

A bankruptcy filing may force Williams Cos. to pay $1.4 billion in Williams Communications debt, $750 million for fiber-optic leases and $250 million for other expenses, Chief Executive Steve Malcolm said last month.

Several investor lawsuits accuse Williams Cos. of misleading shareholders about its liability for the communications company before the spinoff. Williams Cos. created a tracking stock for the unit in 1999.

“Williams Cos. wanted to keep an attractive asset on the books by creating a stock and having some contingent liabilities,” said Jon Goebel, a fund manager at SouthTrust Securities Inc., which owns Williams Cos. shares. “They didn’t anticipate how quick the decline would be, and in hindsight it’s been a disaster for them.”

Goebel’s firm sold its Williams Communications shares last year.

Shares of Williams Communications fell 29 cents to 22 cents. The stock has plunged from a high of $61.81 in March 2000. Williams Cos. fell $1.46 to $14.84. The stock is down 42% this year. Both Tulsa-based firms trade on the New York Stock Exchange.