Worldcom Bond Issuance
WORLDCOM, INC: CORPORATE BOND ISSUANCE
1. IS IT A GOOD TIME FOR WORLDCOM, INC. TO ISSUE? CONSIDER FACTORS IN FAVOR AND FACTORS THAT ARE NOT IN FAVOR.
Personally I believe that the time is not in favor of WorldCom in undertaking one of the largest bond issues at the time. Even though there are many advantages with proceeding with the issue, I believe that the degree and the uncertainty raised by some of the disadvantages outweigh the advantages of going ahead with the $6Billion bond. In the table below are reflected both the advantages and disadvantages of proceeding with the bond.
Advantages Disadvantage
1. MCI Merger, which would be financed by the issue, boosted investor interest and awareness in the company.
2. Credit rating expected to be elevated post MCI merger.
3. Due to Asian crisis investors’ interest has moved from equities to corporate bonds and Treasuries.
4. MCI merger would elevate WorldCom from the 4th largest player in the market to 2nd.
5. The Merger would amplify revenues by more than 4x, which considering the same margins would provide a sufficient interest coverage ratio.
6. The Covenants of the issue are less restrictive then the covenants of the credit facility that it will replace. 1. Corporate yield spreads over Treasuries have increased recently.
2. There are numerous issues in the pipeline for the year. The large supply coming to market is putting pressure on corporate bonds, therefore increasing pricing.
3. There’s great uncertainty in the market by analysts about the future of the economy and the fixed-income market caused by the turmoil in Asia.
4. WorldCom’s historic financials reflect substantial shifts in performance.
5. Currently WorldCom reflects a higher leverage ratio than the industry average.
6. The interest rate on the loan is lower than what the company can attain on the issue.
2. WHAT RISKS DOES WORLDCOM INC. FACE IN ISSUING UP TO $6BILLION IN DEBT? HOW WOULD THE MARKET READ THIS
1. IS IT A GOOD TIME FOR WORLDCOM, INC. TO ISSUE? CONSIDER FACTORS IN FAVOR AND FACTORS THAT ARE NOT IN FAVOR.
Personally I believe that the time is not in favor of WorldCom in undertaking one of the largest bond issues at the time. Even though there are many advantages with proceeding with the issue, I believe that the degree and the uncertainty raised by some of the disadvantages outweigh the advantages of going ahead with the $6Billion bond. In the table below are reflected both the advantages and disadvantages of proceeding with the bond.
Advantages Disadvantage
1. MCI Merger, which would be financed by the issue, boosted investor interest and awareness in the company.
2. Credit rating expected to be elevated post MCI merger.
3. Due to Asian crisis investors’ interest has moved from equities to corporate bonds and Treasuries.
4. MCI merger would elevate WorldCom from the 4th largest player in the market to 2nd.
5. The Merger would amplify revenues by more than 4x, which considering the same margins would provide a sufficient interest coverage ratio.
6. The Covenants of the issue are less restrictive then the covenants of the credit facility that it will replace. 1. Corporate yield spreads over Treasuries have increased recently.
2. There are numerous issues in the pipeline for the year. The large supply coming to market is putting pressure on corporate bonds, therefore increasing pricing.
3. There’s great uncertainty in the market by analysts about the future of the economy and the fixed-income market caused by the turmoil in Asia.
4. WorldCom’s historic financials reflect substantial shifts in performance.
5. Currently WorldCom reflects a higher leverage ratio than the industry average.
6. The interest rate on the loan is lower than what the company can attain on the issue.
2. WHAT RISKS DOES WORLDCOM INC. FACE IN ISSUING UP TO $6BILLION IN DEBT? HOW WOULD THE MARKET READ THIS