Williams Cos. took on more water Tuesday as Standard & Poor’s (S&P) lowered the energy giant’s corporate credit rating two notches to “BB+” (junk bond status) from “BBB.” The move followed the company’s second quarter outlook released Monday, which precipitated a stock price drop-off to a 20-year low in trading that day, and sparked speculation that cash-strapped Williams could become the target of a takeover (see Daily GPI, July 23). Williams Cos. stock closed at $1.19 after an 82-cent (40%) plummet in Tuesday’s trading.

S&P said the company’s other ratings and those of its subsidiaries were also lowered. The senior unsecured debt rating was lowered to “BB” from “BBB-” and the company’s short-term rating was withdrawn. In addition, the ratings have been placed on Creditwatch negative. S&P said the rating action is based on the “deteriorating liquidity position” of the company, especially in the near term.

“The fall in the company’s stock price after announcing a severe dividend cut makes the possibility of issuing equity in the near term unlikely,” S&P said in its note. “Additionally, Williams’ inability to renew the $2.2 billion 364-day revolver, which expires today, on an unsecured basis, is not commensurate with an investment grade rating.”

S&P said it had expected the line to be renewed on an unsecured basis within the $1.5 billion to $1 billion range, which would have mitigated the current liquidity crunch. The ratings agency also pointed out that current market conditions have added substantial execution risk to Williams’ planned $3 billion debt reduction over the next year.

“The Creditwatch is focused on the events of the next two months, where liquidity is tight,” S&P said. “About $800 million of debt at Williams and Transco matures in late July and early August 2002 and about $180 million could come due from existing ratings triggers. Additionally, margin calls ranging from $175,000 to $600,000 may come due because of the sub-investment grade rating of the company.”

In order to meet these cash requirements, S&P said Williams plans to fully draw on the existing $700 million revolver and execute asset sales of about $120 million. If the margin calls come in at the higher level, Williams has a number of options to meet the liquidity needs, including closing and drawing on the secured revolver, a potential bridge financing on asset sales or other options.

“Assuming that Williams is able to weather the financial stress over the next two months, the rating could be removed from CreditWatch,” S&P added. “In addition, a number of potentially positive credit events are on the horizon, including success in its planned asset sales, joint venturing or selling its marketing and trading business and the settlement of the issues in California. The disposition of the trading and marketing subsidiary, in particular, will have a great impact on Williams’ need for liquidity and the overall business risk of the company.”

The credit rating news comes on the same day Williams Energy Partners LP held an unscheduled conference call to address investment concerns that dropped the company’s stock price by $6.00 (more than 19%) in Tuesday trading (see related story). The partnership took the opportunity to inform the investment community that despite the “noise” currently surrounding Williams Cos., Williams Energy Partners is an “extremely healthy” stand-alone company.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.