The telecom carrier said a group of banks that has loaned it $975 million had told the company Jan. 29 that it might be in violation of the terms of its credit agreement. Williams said in a statement that it "strongly disagrees" with the claim, but that it would submit a plan by Feb. 25 to restructure its balance sheet.
The creditors also said they reserve the right to call the company's purchase of certain bonds in the third quarter of 2001 a violation of the credit agreement terms.
Williams did not specify the exact amount of loans said to be in question.
"The possible default relates to the fact that, due to recent negative developments in the telecommunications industry, the banks are questioning whether the company can confirm the representations and warranties included in the credit agreement," Williams said in the statement.
The telecom industry has come under more scrutiny by investors as companies like Global Crossing and McleodUSA both filed for bankruptcy protection last week.
Williams said its restructuring plan does not include seeking bankruptcy protection or the dilution of its stock.
"We are currently working on a plan that serves the interests of all our stakeholders," company spokeswoman Deborah Trevino said.
Williams reported that it ended the year with more than $1 billion in cash and short-term investments.
Williams said its fourth-quarter net loss fell to $372 million, or 76 cents a share, on revenue of $330 million. That compares with a net loss of $547 million, or $1.18 a share, on revenue of $287 million a year ago.
Excluding charges and gains, Williams recorded a loss of 52 cents a share. Wall Street analysts had expected the company to post a loss of 57 cents a share, according to First Call.
Williams increased its customer base by 20 percent, to 353 customers, bringing in the likes of Yahoo, Boeing and Telecom Italia. The company also expanded previous customer relationships during the quarter with WorldCom, Cingular Wireless, Teleglobe, Dominion Telecom and SBC Communications.