A major investor who placed a huge bet on Williams ( WMB) is cashing out early.

According to The Wall Street Journal, Citigroup ( C) recently sold a $400 million note in a move that lessens its exposure to the debt-laden energy company. New York-based Citi carried out similar transactions involving Enron before the company tumbled into bankruptcy.

Bond investors who purchased the new high-yield notes now shoulder the risk if Williams happens to default.

"I do hope people understand what they're buying here," said Fredric E. Russell, a Tulsa money manager with no position in Williams' securities. "They don't have recourse to Citigroup, but to Williams instead."

Citi wasn't immediately available for comment. Williams said it couldn't comment till the sale closes.

Williams has already escaped one close brush with bankruptcy. Two summers ago, the company nearly defaulted on looming debt payments before securing some high-priced financing from Warren Buffett and others. The company has since repaid the legendary investor -- and seen its stock jump from $1 to $10 -- but still remains saddled with a huge debt load and limited earnings power.

For Russell, the Citigroup note sale stirred up some old memories of Williams' darkest days.

"Does Citigroup doubt that Williams will pay this money back?" he wondered. "This doesn't look like a good omen. ... You can feel your stomach getting queasy."

Russell acknowledged that bondholders are pocketing double the treasury yield in exchange for the risks they're taking. But Karl Miller, an outspoken critic of the merchant energy sector, believes that investors still aren't getting a fair return.

"What the markets are doing is taking a high-yield/junk credit and giving it a very tight pricing, which is a sign of the fact that money managers and hedge funds are desperate for yield and willing to reach on poor credit," Miller said.

Last month, Williams did manage to satisfy another debt obligation. The company paid $679 million to redeem some pricey debt related to Williams Communications, a former subsidiary that went bankrupt before Williams itself ran into serious trouble.

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