Moody's Investors Service assigned a Ba3 rating to Williams Communications Group's incremental $950 million bank facility because of the risk associated with transitioning from network construction stage to broadband service provider. "The source of revenue is different from when a company is up and running and lit versus a company at its transition point," said John Page, senior analyst. "A typical model for a company is to construct the network and meanwhile pre-sell wholesale components to reduce construction costs. As you finish, you have capacity you can wholesale." The company reports that 88% of its Year 2000 network revenues were comprised of recurring service revenues, including increasing revenues derived from its preferred carrier alliance with SBC Communications. Williams, based in Tulsa, Okla., is a national provider of communications services and network systems.
The rating also notes that the company's incremental debt exceeds the debt capacity created by the forgiveness of the Williams note, and Moody's considers this adds sufficient strain on the company's financial metrics to warrant a change in the outlook to negative. Page said the company is offering a $975 million note to put to equity. "You could say they've managed to take $1 billion off their balance sheet, but they're replacing it with $1.5 billion in structured notes and $1 billion on the bank facility," he said. "For a leveraged company it's a lot of debt."
Supporting the rating is an equity ownership deal with SBC. As soon as that company starts offering long distance traffic, it will be putting Williams on its network. "Level 3 and 360 Networks don't have that preferential treatment," Page said.