What do you think about WCOM bonds?
One person on Clearstation claims that one series is yielding over 40% but I have my doubt about that. MSN Money Central is talking about yields of about 20% and Forbes mentions bonds with yields "in excess of 11 percent".
The bonds should be a lot less risky then the stock, unless the telecom downturn gets much worse (and then any investment in this area might be doomed).
I don't really know much about buying bonds though. I understand how to buy stocks or even option spreads more then bonds. The basic idea of bonds is pretty simple but finding out specific information about them, and putting in small orders (I can't buy 5 or 6 figure blocks) is harder.
Tim
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forbes.com
"Many telecoms are suffering from investor concerns about revenue, cash flow, profitability and accounting. Bonds maturing in 2011 of phone companies WorldCom Inc. (nasdaq: WCOM - news - people) and Qwest Communications International Inc. (nyse: WCOM - news - people) now carry "junk" like yields in excess of 11 percent, traders said.
"It's a good credit with good prospects," said one portfolio manager, who participated in the sale. "The levels were fair given the recent problems with the telecom sector.""
clearstation.etrade.com
"May 6 issue of Barron's, "Credit Ripple Effects Hit AT&T, Even the Dollar"
Met West senior credit analyst Curt Burns said his firm has been buying about $ 10 million to $ 20 million "over the course of the last couple of days," mostly in WorldCom 7 1/8s due May 2003 at prices between 70 cents and 75 cents on the dollar. At a bid of 72, the bonds are yielding at 44.9%. "You're being offered tremendous return opportunities if you believe, as we do, that they are not going to default and that the business is a real viable business," he says.
WorldCom's core business - providing telecom services to large corporations - is "holding up well," Burns notes. He adds there is about $8.5 billion of combined earnings before interest, taxes, depreciation and amortization between WorldCom and its MCI unit and a commbined $30 billion of face value of debt. The ratio of debt to earnings before...Ebita, is "consistent with a triple-B company, and yet it is trading like a defaulted company," Burns maintains.
This excerpt(any typos are mine) is from an article on p. MW13 of the issue cited above."
news.moneycentral.msn.com
US Corp Bonds - WorldCom steadies, Adelphia cut
May 03, 2002 4:22:00 PM ET
By Jonathan Stempel
NEW YORK, May 3 (Reuters) - U.S. corporate bonds performed largely in line with Treasuries on Friday, amid a dearth of activity that to some traders may have seemed welcome after a difficult week driven by WorldCom Inc.'s (WCOM) woes.
"It's been a very volatile week. It's been a ride. We've had enough," said one investment-grade trader.
In secondary trading, spreads, the yield difference between corporate bonds and comparable maturity U.S. Treasuries, were unchanged to 0.01 percentage point tighter, while junk bond prices were unchanged, also in lighter-than-usual trading, according to traders.
WorldCom bonds ended the week at deeply distressed levels, following a disastrous week when its chief executive quit, its shares fell below $2, and bond investors sold off on worries the debt-heavy long-distance phone company can't cut costs, sell assets and pare debt fast enough to avert a cash crunch.
Its benchmark $11.9 billion bond issue of one year ago, still the largest ever offered by a U.S. company, has shed well over half of its value.
"There has already been more wealth lost in WorldCom in the bond market than there was in Enron (ENE)," the bankrupt energy trader, said Peter Petas, managing director at CreditSights Inc., a New York-based fixed-income research service. "That's a pretty big shoe to drop and there is disbelief that it unraveled so quickly."
On Friday, WorldCom bonds were largely unchanged. Its 7.5 percent notes maturing in 2011 were bid at 45 cents on the dollar to yield 21.59 percent to maturity, and its 8.25 percent bonds maturing in 2031 at 42 cents to yield 19.76 percent.
WorldCom bonds are rated "Baa2" by Moody's Investors Service and "BBB" by Standard & Poor's.
WorldCom shares closed Friday on the Nasdaq at $1.79, down 24 cents, or 11.8 percent, and down 70 percent in the last two weeks. They once traded at a split-adjusted $64.51.
In late trading, 10-year Treasuries rose 9/32, as their yields fell to 5.059 percent. A poll, conducted after the Labor Department said on Friday the U.S. employment rate rose to 6 percent in April, shows only one of 21 Wall Street primary dealers of government securities expects the Federal Reserve to raise interest rates in June. No one expects a hike in May. |
