Williams Communications Group files for Ch. 11

Williams Communications Group, the holding company for long-haul carrier Williams Communications, filed for Chapter 11 bankruptcy protection yesterday while at the same time announcing that several terms of reorganization have already been agreed upon.

Because the filing was made by the holding company, operating company Williams Communications does not expect to be involved in the reorganization process. The business’ operations should be “minimally impacted.” In addition, because most vendors contracted with Williams Communications and not WCG, they “will continue to be paid in full, and in a timely manner.”

It is WCG that will be responsible for managing the bankruptcy process. Already off to a solid start, the company has entered into agreements with its principal creditors and more than 90% of its bank lenders to eliminate all of its roughly $6 billion debt.

This, however, is not a prepackaged bankruptcy, said a spokeswoman. A final reorganization plan has not been worked out. Rather, “the principal credit groups have locked up--they’ve agreed to certain terms of a reorganization plan,” she said. “Many of the decisions that are difficult to negotiate have already been agreed upon.”

Under the terms of this agreement, 100% of WCG pre-petition unsecured claims would be converted into 100% of the common stock of the reorganized company, effectively making current WCG equity worthless. The agreement also requires that Williams Communications raise at least $150 million through additional debt or equity before approval of the reorganization plan. This money will go toward Williams Co.’s agreement to prepay $450 million in bank debt, $200 million of which was prepaid when the lock-up agreement was executed.

The lock-up agreement will be in effect until July 15, and the company many obtain an automatic extension to October 15 if it meets certain other conditions.