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.

Prudential analyst Carol Coale recently pointed to the debt payment -- which will save Williams $47 million a year in interest -- as a milestone for the company.

"The debt redemption was scheduled and its effect is already reflected in our models," admitted Coale, who has a neutral rating on the company's stock. But "in our view, Williams has put a major financial hurdle behind them."

Still, even Coale concedes that Williams is not out of the woods yet. She points out that the company still has $12 billion worth of debt obligations, giving it a lofty "mid-70%" debt-to-capital ratio that could remain intact through the rest of the year.

Going forward, however, Coale expects investors to focus less on the company's restructuring and more on its actual performance. She herself is looking for mediocre results. She believes the company's pipeline earnings will be "flat" and its production growth, at least in certain coal seam plays, are "limited." In the meantime, she's not terribly impressed with the company's recent performance.

"In the past two quarters, Williams has not shown stellar results," Coale noted. And "the next two years may be more challenging for Williams than earlier anticipated."

Russell was also critical of the company's latest results -- but for another reason.

"They're increasingly complex," he said. "You have to figure them out before you can even diagnose" the company's performance.

At least one major insider apparently likes what he sees, however. CEO Steve Malcolm last month exercised options, priced between $7.63 and $9.18 a share, to purchase $173,000 worth of the company's stock. But other insiders have decided to cash in some of their winnings. William Hobbs, who serves as an officer of a company subsidiary, carried out a series of transactions that have netted him nearly $275,000 since the year began. Officer Ralph Williams banked nearly $500,000 from stock sales in February. And Senior Vice President Michael Johnson scored almost $200,000 through stock transactions late last year.

Still, all of that stock would have been worth more now. It inched up 4 cents to $10.04 on Wednesday. Insiders sold their shares for no more than $9.94 -- and as little as $2.58 in one private sale -- over the past few months.