Williams is paying 30% interest on a $900 million, 1-year loan from Lehman Brothers and Warren Buffett’s Berkshire Hathaway. Williams obtained the loanearlier this month as part of its plan to increase liquidity. The company has also announced plans to sell $2 billion worth of assets to bolster its balance sheet.Williams must keep $600 million of actual and projected liquidity on hand for the 1st half of the loan and $750 million in the 2nd half, it said in a filing with theSEC. If Williams fails to meet those terms, it will be forced to sell assets gained from its purchase of Barrett Resources within 75 days. Williams put upcollateral, including its Williams Production RMT exploration unit, as security for the $900 million loan. A group of financial institutions issued an additional$1.1 billion in loans in the form of a $700 million revolver and $400 million line of credit. Williams used the new credit to repay $350 million of 6.2% and $300million of floating-rate notes. Shares of Williams gained $0.02 to $2.82 on the NYSE yesterday.-------------------------------------------------------------
In general, money or credit is tight right now. But, in this particular case, the 30% loan is coming from an investment bank and an insurance / reinsurance company in the business of scrounging around for potential equity capital investments. Williams doesn't have the cash flow to pay the interest on its current debt and this additional loan. I consider Buffet's move, the latest form of leveraged buyout strategy, a way to take over failing companies by extracting assets from them cheaply, thinly disguised. The other financial institutions involved in extending the revolving loans, are doing so simply as a means of restructuring prior debt owed to them, at higher rates. But, if a company can't pay on the lower interest loans, due to mass revenue failure, and in William's case, a bunch of fraud investigations and suspicious revenue from energy market manipulation (their major role in the CA electricity crisis was closing down some of their power plants, so that others could charge more for power), they won't be able to pay on higher interest loans. (also, their balance sheet is purposefully unclear on the amount of their total debt and deferred income tax payments - let me know if you want more details about that.)
Nomi
