WorldCom Issue Expects Lift From Recent Debt Offerings
By DENA AUBIN
Dow Jones Newswires
NEW YORK -- Encouraged that recent telecommunications offerings have traded strongly after coming to market, investors are expected to flock to a $2 billion debt issue Wednesday by WorldCom Inc.
However, the company's Rule 144a offering is likely to provide generous yields to overcome an otherwise cautious mood among bond investors toward telecommunications companies. WorldCom faces a buyer's market, and its yields have been adjusted accordingly, analysts said.
"Demand is going to come at a price in today's market," said Robert Schiffman, telecommunications analyst for Credit Suisse First Boston.
No official indications were available for yields in the offering, which is to be led by J.P. Morgan Securities.
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But some people in the market anticipated yield margins of about 1.90 percentage points over two-year Treasurys for a 10-year portion -- with a two-year put/call feature. They also expect a yield margin of 2.15 percentage points over Treasurys for a five-year maturity.
Investors also like the fact that WorldCom is offering shorter maturities, which generally are less risky than longer ones, some said.
WorldCom's senior unsecured debt is rated single-A-3 by Moody's Investors Service and single-A-minus by Standard & Poor's Corp., which has a negative outlook on the rating.
It is more difficult to sell corporate issues late in the year, because many people close up shop well ahead of Dec. 31. Some investors also are concerned about the impact of a slowing economy on debt issuers.
But investors began growing more receptive to issues by telecommunications companies after successful deals last week by British Telecommunications PLC (rated single-A-2 by Moody's, single-A by S&P) and Verizon Global Funding Corp. (rated single-A-1 by Moody's, single-A-plus by S&P).
Both offered generous yield margins, and both traded strongly later, reassuring buyers. Yield margins for Verizon's 10-year securities narrowed about 0.13 percentage point, suggesting good demand. British Telecom's 10-year notes narrowed about 0.20 percentage point in yield margin.
Broader market sentiment also has become more constructive, said Ruth Mulligan, vice president in fixed income at MFS Investment in Boston. "Sentiment going forward is positive," she said.
Wayne Schmidt, portfolio manager for Advantus Capital Management in St. Paul, Minn., said he has been avoiding phone-company bonds because of the increased debt issuance and large investments needed for new technologies. Even so, phone companies are becoming such a large part of the fixed-income arena that he may reconsider, he said.
WorldCom recently announced plans to realign its businesses into two publicly traded tracking stocks, one for its data, Internet, Web-hosting and international businesses, and an MCI tracking stock for its consumer long-distance business.
Like rivals, it faces pressure in the long-distance arena. But analysts say its financial flexibility remains strong. The company's debt will remain under two times its earnings before interest, taxes, depreciation and amortization, meaning WorldCom should be able to maintain ratings in the single-A range, CSFB's Mr. Schiffman said.
Separately, several investment-grade corporate-bond deals were sold Tuesday without difficulty.
They included DaimlerChrysler AG's $1 billion of two-year floating-rate notes (rated single-A-2 by Moody's, single-A by S&P), which yielded 0.77 percentage point over the three-month London interbank offered rate. Banc of America Securities and Chase Securities were joint lead managers. |
