Williams Companies, an operator of natural gas pipelines and a communications network based in Tulsa, Okla., successfully issued $1 billion in debt that market observers said was heavily oversubscribed. But there are some skeptics who passed on the credit because of questions over Williams Communications, the heavily indebted network provider 85% owned by Williams Companies. Williams Companies is planning to spin off the single B-rated subsidiary by August, but according to Mike Dineen, portfolio manager at MONY Life Insurance in New York, with market volatility it may be difficult. Because of the possibility of having to support the subsidiary with parent company cash flow, Dineen wouldn't touch the credit: "They have a lot of financing risk, because an IPO of Williams Communications is predicated on a receptive equity market. I
In addition to a choppy equity market, "There is a pent up supply of IPOs in the market, with AT&T mentioning they would like to do some wireless stuff and also a possible Sprint PCS offering," says Mike Weaver, analyst at Fitch IBCA in Chicago "this isn't the best market for a carrier's carrier."
The enthusiasm greeting the debt issue was largely a function of a separate $1.1 billion equity issue, according to one participant, the proceeds of which are targeted for debt reduction. Lehman Brothers and Merrill Lynch are co-lead managers for the equity deal set to price this week, according to a debt market observer. UBS Warburg was the sole lead manager for the issuance.
Hugh Welton, a gas companies analyst at Fitch in New York, notes that although the Williams Communications debt is non-recourse, it's within Williams Companies interest to prevent a default. "[Williams Companies] has a strong economic incentive to help them out if they need it." Officials at Lehman note that Williams wouldn't be issuing the additional $1 billion in debt if it wasn't confident of the success of the equity offering.
