Moody's raises MCI WorldCom Inc
(Press release provided by Moody's Investors Service)
NEW YORK, June 25 - Moody's Investors Service has raised the ratings on long term securities of MCI WorldCom, Inc. and its subsidiaries to A3 from Baa2 for senior unsecured, to Baa1 from Baa3 for subordinated and to ''baa1'' from ''baa3'' for preferred stock.
The Prime-2 rating for commercial paper is confirmed.
The rating upgrade reflects the expectation that the company will be able to demonstrate strong operating performance and to improve its financial position in an business environment that will continue to be highly competitive.
Integration of MCI and WorldCom has been extremely smooth and therefore execution risk has diminished. While the company has historically been extremely acquisitive in its efforts to achieve critical mass, the rating agency believes that further acquisitions of local networks in the U.S. and in international markets are unlikely and that internal opportunities should provide significant growth for the future.
The rating outlook is stable.
Since its merger with MCI in 1998, the company has focused on a strategy of controlling end-to-end traffic, maximizing the utilization of its network, expanding its geographic reach and targeting the fastest growing segments of the telecommunications market.
The company has delivered significant cost and capital synergies, identified and sold certain non-core investments and is expected to invest the proceeds within its existing business mix.
The European developments evidence its commitment to develop and control meaningful network assets. International revenues are currently quite modest and margins run well below the corporate average.
However, the revenue potential is significant and margins should improve as networks are completed and utilization levels increased.
The company maintains a strong 2nd position in the U.S. long distance market and continues to focus on the business customer.
This will likely constrain the negative impact of RBOC entry into long distance, as we expect the residential and small business markets to be the first target.
MCI WorldCom is very well positioned in the data and internet markets. While currently relatively small in terms of revenue, these areas represent the fastest growing segments of the market and have very strong margins.
UUNET is a recognized leader with a number of years of internet experience.
Mobile wireless remains a highly visible gap in the company's product offering.
The recent collapse of talks with Nextel indicates that the company does not feel that filling this gap is critical at this time.
However, Moody's believes that there is still potential for the company to invest in mobile wireless to complement its existing offerings.
Financial performance of the combined enterprise has been very impressive, with first quarter 1999 EBIT coverage of interest at nearly six times and annualized Debt/EBITDA of less than two times.
This measure of leverage should continue to improve as earnings grow and the company deploys the proceeds of its asset sales.
Cash generation is increasing at a rate that will allow internal financing of the current business in the near future. These levels of debt protection are relatively recently achieved, but are expected to be sustained over time.
The company has had a history of undertaking a number of relatively sizable acquisitions within a short period of time.
However, the management team has demonstrated a willingness to prudently finance these transactions and an ability to manage the integration in an orderly fashion.
Smaller scale acquisitions such as the recent transactions with Skytel and the fixed wireless operators are likely to continue.
However, the company has developed a size that provides flexibility within the new rating category.
The rating agency also noted the financial discipline evidenced in the recent decision not to proceed with the Nextel transaction, which would have unquestionably increased the financial risk to creditors in addition to being quite dilutive to equity holders.
MCI WorldCom, headquartered in Jackson, Mississippi, is one of the largest telecommunications companies in the United States, serving local, long distance and internet customers domestically and internationally. |
