More bad news for Williams Companies. Tuesday, Standard and Poor's lowered Williams bond rating to a triple â€œB-.â€ That's just a notch above junk status.
As News on Six business reporter Steve Berg tells us, the Enron scandal has created a hostile environment for energy traders. For Williams, the world can be defined as "BE" and "AE". That is, "Before Enron" and "After Enron".
Since the scandal, all the energy companies are under intense scrutiny. Williams says the change in their credit rating was expected, but that doesn't mean it's good. A lower bond rating means higher expenses for Williams, as Paine-Webber's David Healy explains. "The downgrade of the bond or the credit rating means it's going to be more expensive for them to come to the market. They're going to have to have a higher interest rate on those bonds in order for people to want to buy them."
But Williams is already taking aggressive steps to stop the bleeding. They've announced a plan to sell another $1.5 billion to $3-billion in assets. They plan to reduce their annual costs by $100-million, double their previous goal. And they intend to sell anywhere from $1-billion to $1.5-billion in new stock. Although that last bit might not thrill existing stockholders. "It's gonna be significant from the current stockholders standpoint because there's now going to be more shares out there, which means it's going to dilute the earnings of the company, so you're going to have a dilution effect."
Still, according to Williams, the ratings agencies are calling it a solid plan. And it may be the only way to avoid "junk bond" or non-investment grade status, which would be a huge handicap in the energy trading business.â€ As long as they're held at the investment grade level or better, then they're alright. And they're at the bottom rung of the investment grade level but they are still investment grade."
Williams CEO Steve Malcolm says he met with the ratings agencies and says they called the current Williams strategy a "solid plan". Even so, Standard and Poor has designated Williams with a "negative outlook".