Credit Facility for WorldCom Faces Delay as Talks Continue
By SHAWN YOUNG
Staff Reporter of THE WALL STREET JOURNAL
CLINTON, Miss. -- WorldCom Inc. may not be able to close a critical $5 billion credit facility by the end of June as previously expected, illustrating that banks are seeking strict conditions to lend to the struggling telecommunications giant.
Company officials disclosed the possible delay in negotiations over the credit line at WorldCom's annual meeting on Friday. They stressed that the company is willing to hold out for a deal that preserves its financial flexibility, and that WorldCom doesn't have any pressing liquidity issues.
In his first public meeting with shareholders, Chief Executive John Sidgmore sought to reassure investors that the worst is behind the company after its founder and former chief executive, Bernard J. Ebbers, was ousted at the end of April. WorldCom's stock has fallen more than 90% since January, trading Friday at $1.60 in 4 p.m. composite trading on the Nasdaq Stock Market.
Mr. Sidgmore, who assumed the CEO title in the wake of Mr. Ebbers's departure, said he is in the midst of a complete strategic review of WorldCom's 78 acquisitions under Mr. Ebbers, and is willing to do what it takes to restore the company's luster.
"We know that these have been tough times," Mr. Sidgmore said. "I really believe that we've got a good chance of unveiling the value of this company again."
High on his list is fixing WorldCom's debt-laden balance sheet. Mr. Sidgmore confirmed Friday that WorldCom will cut $1 billion from its capital spending this year and said 16,000 job cuts, amounting to 20% of its work force, are "in the ballpark" of expected layoffs. WorldCom already has announced plans to eliminate the MCI tracking stock and exit its wireless business, which Mr. Sidgmore estimates will generate a total $1 billion in cash.
Scott Sullivan, WorldCom's chief financial officer, said the company faces no penalty if it fails to complete negotiations for the new credit line by the end of the month. He said a credit line with highly restrictive conditions could hurt the company by limiting its options and might yield little benefit if those conditions prevented WorldCom from having ready access to the money.
WorldCom's lead banks are Citigroup Inc., J.P. Morgan Chase & Co. and Bank of America Corp.
"The most important thing is flexibility," Mr. Sullivan said. WorldCom still intends to let a separate $3.75 billion credit line expire untapped at the end of the month as planned, he said.
The credit-line negotiations are being closely watched by rating agencies and investors as an indication of the company's ability to maintain financial stability in the coming years. Most analysts didn't seem alarmed by a delay, as long as it didn't stretch out for months. Standard & Poor's Ratings Group analyst Richard Siderman agreed the terms are key in determining the real value of the credit line to WorldCom.
"If it slips into early July, that's not an undue concern," said Moody's Investors Service analyst Robert Ray. "However, if it looks like they're going to have trouble concluding the negotiations, that could be a negative."
But if WorldCom doesn't have a new credit facility in place by the end of June, the company risks operating without a backstop facility -- something analysts said could be dangerous given its financial condition and the continuing turmoil in the telecom industry.
It could also make it more difficult for WorldCom to negotiate with the banks. That is because with the current facility in place, WorldCom at least has the leverage to draw down the money -- something the banks would like to avoid. But if the company is negotiating without a line of credit in place, analysts said the banks will have the upper hand, potentially making it harder for WorldCom to reach an agreement.
"WorldCom hasn't woken up to the reality that they don't have much leverage with the banks," said Drake Johnstone, an analyst with Davenport & Co. in Richmond, Va.
Also Friday, Mr. Sidgmore defended Mr. Ebbers's severance package, which pays the former CEO $1.5 million a year for the rest of his life, to the criticism of several indignant shareholders.
But other shareholders are standing by WorldCom and the company's founder. "There probably would not be a WorldCom without Mr. Ebbers," said Robert Shelton, a shareholder from Clinton, Miss., who attended the meeting.
-- Deborah Solomon contributed to this article.
Write to Shawn Young at shawn.young@wsj.com
Updated June 17, 2002 |
