William 2002

william William-2002

INTRODUCTION:

William is a Tulsa based company that is into the energy related businesses including the exploration and production, pipelines, energy trading and telecommunications. It is suffering from a decline in the energy markets owing to the crash of Enron, pressure on margins in the telecommunications business owing to oversupply and inquiries by the regulators into alleged financial improprieties.

Oversupply in the telecommunications business has led to a decline in profits and margins in the industry forcing many players to back out of this sector. This goaded the Williams enterprise to guarantee an indirect credit support for $1.4 billion of WCG’s debt. At the same time, the deterioration of the energy industry resulted in more stringent requirements for the credit rating of investment grade companies. In response to those requirements, Williams initiated, at the end of 2001, a number of initiatives to “bolster its balance sheet” in order to maintain the company’s investment grade credit rating. These initiatives included large asset-sales (to be used to reduce outstanding debt), reduction of capital expenditures and reduction of quarterly dividends paid on the company’s common stock. Additionally, the company completed the sale of $1 billion equity based securities called “FELINE PACS”. But despite these initiatives, Williams’ credit rating was downgraded to B1 in July 2002 (Source: Case - Exhibit 4).

The decline in the credit rating has hampered William’s ability to raise cash from the market. This is expected to severely affect its energy marketing and trading business which is highly dependent upon the ability to obtain the available credit in the market. Hence with a loss of rating and with a large amount of maturing debt, Williams is facing an imminent liquidity crisis.

The dramatic fall of more than 90% in Williams’ stock price within a period...