Don't panic -- yet.

That is analysts' advice to debtholders of Columbia Gas System Inc., whose investment-grade securities were cast on the junk heap Wednesday when the company stunned Wall Street with news that included the prospect of bankruptcy.

While quotes on the natural gas utility's bonds slumped as much as 10 points yesterday, lifting their yields as high as 12.5%, few securities changed hands, dealers said. Many accounts are riding out the storm as Delaware-based Columbia tries to renegotiate contracts with its gas producers and bankers, market players said.

"I would sit tight until they straighten out the situation with the banks -- that should take a couple of weeks -- at which point I would probably blow out of them," said Richard S. Barnett, industrial analyst at Mabon Securities Corp. "They'll settle the gas agreements down the road, but my faith in management has been slightly shaken."

Columbia, a leading supplier of natural gas to utilities in the Northeast, faces as much as $ 1 billion of losses on take-or-pay contracts with its gas suppliers.

"It's fair to say that the entire Wall Street community was shocked by Columbia's self-inflicted wound," said Curtis Moulton, senior vice president at Standard & Poor's Corp. "We had more than 75 calls from fixed-income analysts, so if we were surprised we were not alone."

News of the liability prompted Moody's Investors Service and Standard & Poor's to cut Columbia's investment-grade unsecured debt to junk status.

Moody's cut Columbia's unsecured debt to Ba1 from Baa1, while Standard & Poor's dropped it to BB from BBB-plus. Fitch Investors Service, meanwhile, placed its BB rating on Fitch Alert with negative implications.

Ralph Pellecchia, senior vice president at Fitch, said that although "you have a liquidity problem that is the immediate concern, there's an underlying belief that the banks will negotiate."

Columbia's problems are acute because it relies on commercial paper and its bank group, which is led by Morgan Guaranty, more than other companies, Mr. Pellecchia said.

While "these are the senior securities secured by the company's general credit, that doesn't mean holders have no protection," he said. "There's a 'negative pledge' covenant, which essentially says you cannot get above them. That may be one of the big issues that's being negotiated with the banks."

Standard & Poor's yesterday said it believes Columbia's bank group will continue to extend credit, based on Columbia's sound long-term business prospects. And while Columbia Transmission Corp. may file under Chapter 11, Columbia's debenture indenture does not have a cross default provision, so a bankruptcy filing by the subsidiary would not lead to a default at the parent company.

Traders noted that regardless of Columbia's long-term prospects, the company's slide below investment-grade status will force many investors to sell. Many mutual funds, for example, are restricted by their investment guidelines from holding junk bonds.

"It's kind of frightening [because] you can't readily identify this exposure through 10Q filings or normal disclosure documents," said Ian MacKinnon, head of Vanguard Group's fixed-income department.

"What we would hope is that the ratings services, with their access to inside information, would factor take-or-pay exposure into their ratings assessments," Mr. MacKinnon said, adding, "if you ask me, it's a lapse on the part of the ratings agencies for not identifying this as a potential problem."

But other suggested that bottom fishers, eyeing Columbia's future business prospects, may eventually step in.

"We're not talking about a business that's collapsing because it's fundamentally unsound," said Michael Dahood, president of Fixed Income Research Co. in Princeton, N.J. "We're talking about a persistent problem of uneconomic contracts."

In 1985, Columbia agreed to pay its suppliers more than $3 per thousand cubic feet of natural gas -- more than twice the recent spot price.

"If we can get out of these contacts we clearly have a viable business," Mr. Dahood said. "For me, I'd like to let these bonds get nice and cheap and then go in and buy them. If some holders can't take the heat, the bonds will become available at prices that reflect their inability to hold on, whether it's for psychological or legal reasons."

Most analysts said the surprise of Columbia's news has sent investors scrambling to evaluate such contingent liabilities at other gas companies.

"The industry has said that they've essentially cleaned up their take-or-pay problems, and then all of a sudden Columbia Gas comes out and says they've got a $1 billion exposure," said Mabon's Mr. Barnett. "It's got to raise questions about what skeletons are in other people's closets."

Said Standard & Poor's Mr. Moulton, "We're taking a look at other interstate systems and are comfortable that no others have take-or-pay exposure anywhere near Columbia's."

Most investment-grade corporate bonds inched 1/8 point higher yesterday, holding their spreads to Treasuries. Junk bonds, meanwhile, finished little changed.

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