Williams announced an agreement to make semiannual interest payments on $1.4 billion of Williams Communications (WCG) debt and place the debt on its balance sheet this year. The deal removes the conditions under which Williams could have been obligated to come up with the entire $1.4 billion.

The company called it a significant step toward resolving major issues related to the financial obligations of its former telecommunications subsidiary. Shares of Williams soared 15% on Tuesday to $19.10 partly in response to the late news, but also in reaction to the recovering economy and the likelihood that energy producers will benefit from rising demand.

Williams said it now expects that any change in the business condition of WCG — which is considering bankruptcy as a possible step in its financial restructuring — will have no impact on the note.

Under terms prior to the negotiations with noteholders, the notes were contingent liabilities of Williams with the full $1.4 billion due upon certain changes in the business condition of WCG or a trigger directly tied to Williams’ credit ratings. The restructured terms remove those triggers.

“This is a very positive development — one that we believe will be well received by credit-rating agencies and lenders. We believe our stockholders also should feel more confident that this eliminates any substantial near-term cash requirement related to this issue,” said Williams CEO Steve Malcolm.

“We are continuing to resolve these financial issues in a manner that is designed to preserve the financial flexibility and appropriate debt and equity levels that support our investment-grade credit rating,” Malcolm said. The major elements in Williams’ effort include the WCG debt restructuring, reduced capital spending, asset sales, issuing securities and reducing costs.

Malcolm said the company would continue to look for other measures that will help it meet the credit-rating agencies’ new, more conservative standards for an investment-grade balance sheet.

Williams previously announced a balance sheet strengthening plan that includes the issuance of $1.1 billion in securities, reduction of 2002 capital spending of $1 billion or more, the sale of assets and reductions in operating expenses. Part of that overall plan included the removal of triggering events, such as the ones in the WCG notes. The company expects to release its audited 2001 financial earnings later this week.

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