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Ng and Energy Trading Had Put Williams Under Financial Distress. to Solve This Problem, Malcolm, Ceo of Williams, Is Now Facing a Tough Decision R

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Williams is a Tulsa based company engaged in energy industry including exploration, refining, pipelines, energy trading and telecommunication. The collapse of its telecommunication business, softness in the energy market, and ongoing inquiries from regulators about its reporting and energy trading had put Williams under financial distress. To solve this problem, Malcolm, CEO of Williams, is now facing a tough decision regarding a $900 agreement with Lehman-Berkshire Hathaway. In this report, we will retrospect Williams’ previous financial decisions, conduct a current financial analysis and future cash inflow/outflow projection, evaluate the agreement covenants and finally bring up our recommendation.
2. Retrospection
Since 2000, Oversupply in the telecommunications business has lead to a dramatic decline in profit margins in WCG—Williams’ telecommunication subsidiary. To strengthen WCG’s capital structure, Williams converted a $975 million note from WCG into equity, and guarantees an indirect credit support for $1.4 billion of WCG’s debt. At the end of 2001, Williams had no better choice but to write WCG off and reported a $1.3 billion loss in accounting.
At the same time, the deterioration of the energy industry resulted in the first loss in Williams Energy Marketing and Trading in 2nd quarter of 2002. To reflect the firm’s health, S&P downgraded Williams’ bonds below investment grade, leading to a higher financing cost for Williams in future.
All the financial decisions are directly reflected on its accounting reports and results in a potential financial distress. For example, from 2001 to June 30 2002,...

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