Williams to Cut Capital Spending 25% in '02, Sell Non-Core Assets
Faced with what an executive called the "new reality in financial markets," Tulsa-based Williams said Wednesday it would cut capital spending by $1 billion, or 25%, next year and sell non-core assets to raise between $250 million and $750 million in a scheme to strengthen its balance sheet. Williams also plans to issue $1 billion in mandatory convertible preferred securities in 2002, all steps in a plan to retain its investment-grade credit rating.
Williams' announcement is similar to debt-reduction plans recently announced by El Paso Corp., Dynegy Inc., NRG Energy Inc. and American Electric Power -- all related to the fallout caused by Enron Corp.'s bankruptcy.
"We believe both our business platform and strategy are as solid today as they were six months ago, and we have historically met every performance measure required by debt rating agencies to remain an investment-grade company," said COO Steve Malcolm. "But as we all know, there is a new reality in financial markets regarding our sector of the energy industry. Today's steps show that we are being responsive to that sentiment as we continue to execute on the balanced growth strategies for our considerable suite of physical assets, while offering our customers an array of services to manage their price risk and certainty of supply."
Williams also announced that it expects to take a fourth quarter 2001 impairment loss of $120-$170 million related to the delay in opening its soda ash facility in Colorado. The company said it wanted to "initiate action to eliminate the ratings triggers in the limited number of Williams' financings that have them."
Malcolm said "deal flow remains robust and has increased since the terrorist attacks and the Enron bankruptcy," but "current uncertainly surrounding the energy merchant business environment is delaying the pace of closing transactions that were expected during the fourth quarter of this year." He said, however, that he believes Williams will meet its 2001 recurring earnings per share of $2.40.
"We believe today's market environment is a short-term issue and that we ultimately will see stepped up deal closure," said Malcolm. "While issuing the securities and the additional steps that we announced...will further strengthen our balance sheet, the costs of restructuring our capitalization, the economy and other factors may cause us to reduce our year-over-year earnings growth targets from 15% to 12-15%."
In reaction to the announcement, Moody's Investors Services confirmed Williams' and its subsidiaries' ratings. It also confirmed the debt rating of Williams Communications Group Note Trust, a third-party special purpose vehicle to which Williams has a contingent obligation. The "rating outlook remains stable," said Moody's.
"These ratings actions are in response to Williams' debt reduction plan that includes a sizeable reduction in capital expenditures, asset sales and an issuance of convertible equity," said Moody's." Williams also plans to eliminate rating triggers contained in certain of its debt financings. This debt reduction plan will quickly address Moody's concerns about leverage that has crept up in recent years, and provides for future equity to support its riskier business profile."
Moody's confirmed the following for Williams: P-2 commercial paper; Baa2 senior unsecured; Baa2 senior unsecured medium term notes; Baa2 senior unsecured bank facility, (P)Baa2 senior unsecured shelf; (P)Baa2 subordinate shelf; (P)Ba2 preferred shelf; and (P)Ba2 preferred shelf.
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