Trouble in Williams Companies Inc Essay Example | Topics and Well Written Essays - 1000 words

Trouble in Williams Companies Inc - Essay Example The collapse of Enron in the late 2000 and in the early 2001 was a problem to Williams. This led to uncertainty in the future of energy trading as participants assessed their exposure to Enron. As a result, it competitors like El Paso Corp. announced its intention to curtail investment in energy and concentrate in natural gas. Another rival Reliant resource also decided to scale down its energy trading. The businesses then become very difficult making Williams to record a loss, its first loss in a period of three years. The news about all the problems facing Enron Corporations broadband unit as well as Global Crossing highly exposed substantial weaknesses in the telecom industry and this made Williams Communication Group to be unable to meet its covenants which then led to breach of its lending agreements with its creditors making William Companies financially distressed. Proposed $900 million funding agreement As way to save its situation, Williams Companies Inc proposed a $900 million agreement with Lehman-Berkshire Hathaway which would fund the company and the agreement would be backed by the assets of Barrett Resources Corporation, a company which the Williams had acquired in 2001. The conditions provided for in this agreement were too strict and too onerous for Williams considering the fact that the company was going through tough financial times. The terms required Lehman Brothers would each advance Williams $ 450 million for a period of one year. The terms also required Williams to make a number of payments which included interest rate of 5.8% payable in quarterly basis, the principal amount in one year and an additional payment of 14% of the principal to be paid in cash upon maturity. The proposition would be very helpful to Williams as it would restore liquidity in the company and also increase cash flow but the problem was how to finance it given the financial hard times faced by the company. The loan from Lehman Brother will be guaranteed by William Companies and all of its subsidiaries indicating that the company may lose everything if it is deemed unable to pay for the loan. As a result, the Williams felt a sense of fear that if all does not work out well, they might end up being bankrupt hence losing the company and its subsidiaries to Lehman-Berkshire Hathaway. From the perception of Lehman Hathaway, the proposition would be a good deal for Williams as it will help the company to restore liquidity. According to Lehman Brothers, the terms may not be of much importance for as long as the situation is well taken care of. The purpose of each item in the proposition The purpose of each of the terms of the Proposed Short term credit agreement was to ensure that Williams eventually paid for the loan acquired. Considering the fact that Williams was almost bankrupt, there was the need for Lehman Berkshire Hathaway to restrict Williams in so many ways to ensure t hat the company tried as much as possible to gain from the loan in order to repay the loan without having to sell its assets. The main purpose of having William Companies guaranteed by the company and i