WorldCom Shares Hit New Low After S&P Also Issues Downgrade
By SHAWN YOUNG
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Standard & Poor's Corp. cut its rating on WorldCom Inc.'s debt to junk status, as the No. 2 long-distance company took its first steps toward a massive restructuring by laying off employees in its struggling wireless business.
S&P's downgrade was issued Friday after similar reductions by Moody's Investors Service and Fitch Ratings on Thursday. At 4 p.m. Friday in Nasdaq Stock Market trading, WorldCom Group shares were down 43 cents, or 21%, to $1.58. WorldCom's 10-year bonds fell to 43 cents on the dollar Friday. Bonds maturing in 2005 traded at 54 cents, down from 60 cents.
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John Sidgmore, WorldCom's new chief executive, is in the midst of a 30-day review of ways to shore up the Clinton, Miss., company's balance sheet and focus its operations on its most profitable areas. Already, the company has said it is considering selling or restructuring its wireless business, which has about two million customers and brings in about $1 billion a year in revenue. Still, Mr. Sidgmore last week said it is hemorrhaging money.
On Friday, WorldCom laid off about 5% of the wireless work force, mostly sales employees, a company spokeswoman said. She declined to say how many are employed within the wireless division.
Wireless has long been a sideline for WorldCom , which buys mobile service wholesale from larger carriers and resells it under its own name. The company had planned to enter the wireless business on a large scale by buying Sprint Corp., but regulators quashed that deal on antitrust grounds in 2000, leaving WorldCom's wireless operation adrift.
S&P's three-notch rating cut lowered WorldCom's long-term rating to double-B from triple-B and its short-term rating to single-B from single-A-3. A WorldCom spokeswoman said the downgrade would have no impact on WorldCom's liquidity or its negotiation with its banks for a $5 billion credit line.
The downgrades came in response to a deepening crisis at the company, which has about $30 billion in debt and last month ousted founder and former Chief Executive Bernard Ebbers. The company, which faces a Securities and Exchange inquiry into its accounting, cut its 2002 revenue forecast by at least $1 billion last month, sparking intense concern about its ability to handle its debt load.
S&P has WorldCom on CreditWatch, meaning its debt is subject to a further downgrade. S&P cited "significant deterioration in the company's financial condition." The move, said S&P credit analyst Richard Siderman, reflects concerns "beyond the near term."
The company is currently negotiating with its banks for the renewal of a $2.65 billion line of credit that expires June 7. It last week said it is planning to combine that credit line with another $1.6 billion line and add from $750 million to $1 billion, for a total credit line of about $5 billion. The banks are demanding collateral for the first time.
-- Gregory Zuckerman contributed to this article.
Write to Shawn Young at shawn.young@wsj.com
Updated May 13, 2002 8:50 a.m. EDT |
