The Williams Cos. expects a restructuring of $1.4 billion in notes issued by the WCG Note Trust, an indirect wholly-owned subsidiary of Williams Communications Group Inc., to be completed in the “very near future,” after favorable talks with investors.

The company has been under increasing pressure because its former communications subsidiary announced that it will consider bankruptcy as a possible means of restructuring. Williams spun off 95% of Williams Communications to shareholders in April 2000, but may have to assume $2.2 billion of the former subsidiary’s debt because of financial guarantees arranged at the time of the spin-off.

Last week, credit rating agency Moody’s Investors Services said it was maintaining an investment grade Baa2 rating for the senior unsecured debt of Williams Cos. but had downgraded the outlook for the company to negative from stable.

Despite the likelihood of more negative news coming out this week, Merrill Lynch analyst Carl Kirst said he expects the week will mark a turning point for Williams, with its obligations to WCG finally being ironed out and its financial earnings being released. He said the news should “spark the beginning of an expected recovery.”

“In a market that detests uncertainty, we believe WMB’s situation is set to coalesce from somewhat amorphous and wide ranging concerns to that of a firm plan addressing a set level of exposure,” said Kirst. “While we do expect [earnings per share] guidance to be lowered at next Friday’s analyst meeting, we believe such a move will solely be due to the impacts of WCG. At this point our current ’02 and ’03 [earnings per share estimates] have yet to reflect such downside, as actual dilution will be contingent upon whether 1) WCG reaches any balance sheet restructuring arrangement, 2) WMB’s own financial flexibility and success in the consent solicitation, and 3) WMB’s actual plan of action for WCG such as increased asset sales.”

Kirst said the worst-case scenario is 10% earnings per share dilution and he still has a “Strong Buy” on the company because of its “net asset value of $17-$18 and $28 price objective.”

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