High-speed communications network operator Williams Communications Group Inc. Monday said it does not expect to file for bankruptcy although its banks warned it may default on terms of a credit agreement.

The Tulsa, Oklahoma company also posted a smaller fourth-quarter loss on higher revenues from its network business. But investors shrugged off the improved revenues and focused on the threat of a default, sending Williams' stock down 39 cents, or 27.46 percent, to $1.03 on the New York Stock Exchange in late-afternoon trading.

Stocks throughout the telecommunications sector fell, extending last week's sell-off, as investors feared additional bankruptcies may follow last week's filings by Global Crossing Ltd. and McLeodUSA Inc. .

Williams and rival network-services companies, such as Level 3 Communications Inc. and Qwest Communications International Inc. , have been hurt by pricing pressures, tightened spending by businesses in the weak economy and stiff competition from an abundance of fiber-optic networks.

Citing the recent pall over the telecom industry, Williams said its banks on Jan. 29 questioned whether it could live up to the terms of its credit agreement. The banks also reserved the right to claim that Williams' purchase of its own senior redeemable notes last year might have violated the credit agreement, it said.

Williams said it "strongly disagrees" with the banks' position and noted that it met financial requirements for 2001. The Tulsa, Oklahoma-based company said it would submit to its lenders by Feb. 25 a plan to restructure its balance sheet, but it did not expect to seek bankruptcy court protection, or substantially dilute the interests of its stockholders.

Williams declined to discuss options under consideration.

"The dramatic negative swing in the communications sector, including a meltdown of bellwether wireline carriers and continued pressure in results due to deferred enterprise spending, could impact Williams' outlook and ability to meet its targets presented to its lenders," said Kaufman Bros. analyst Vik Grover. He cut his rating on Williams' stock to "accumulate" from "strong buy."

WILLIAMS POSTS LOSS, NETWORK REVENUES RISE AS EXPECTED

For the fourth quarter, Williams said its net loss decreased to $372 million, or 76 cents a share, from $546.6 million, or $1.18 a share, a year earlier. Excluding one-time items, Williams' fourth-quarter loss was 52 cents a share.

Wall Street analysts had expected Williams, whose communications network connects 125 U.S. cities and five continents, to post a loss of 43 to 63 cents a share, with a mean forecast of a loss of 57 cents a share, according to research firm Thomson Financial/First Call.

Revenues rose to $330.3 million from $287.0 million a year earlier. Network revenues totaled $302.8 million, up 36 percent from a year earlier and up 12 percent from the third quarter. Network revenues were at the low end of the company's target of about $300 million to $325 million, but still marked 16 straight quarters of growth.

Williams had a loss in operating cash flow of $12.8 million, a 43 percent improvement from the third quarter of 2001. Although the cash flow result was in line with the company's target, analysts said the improvement came through cost-cutting, rather than improving profits margins.

At the end of the quarter, Williams' network customer base grew to 353 customers, up 20 percent from the third quarter of 2001. It said it would announce a "significant customer relationship" later this week.

CS First Boston analyst Dan Reingold cut his 2002 forecasts on the company, citing "the risk of default, ... our expectation for continued competitive pressures in the wholesale market, and continued uncertainty associated with funding beyond '03."

Reingold, who has a "hold" rating on the stock, cut his 2002 network revenue forecast by $60 million to $1.450 million, and trimmed the network cash flow forecast by $55 million to $200 million.

Williams said it would provide its 2002 growth outlook on Feb. 13.

Last week, Moody's Investors Service lowered the ratings on $6.7 billion of Williams' publicly traded debt, saying weakness in the high-speed fiber optic network market would likely constrain its revenue growth.

As of December 31, Williams had cash and short-term investments of more than $1 billion. The company said it has enough money to fund its business operations through 2003. Last month Standard & Poor's cut Williams' debt rating and warned it may make further cuts amid concerns about the company's ability to fund its business beyond 2002.