TEXT-Fitch cuts WorldCom snr unsecured debt, may cut further
(Press release provided by Fitch Ratings)
NEW YORK, June 20 - Fitch Ratings has downgraded the senior unsecured debt ratings for WorldCom, Inc. <WCOM.O> (WorldCom) to 'B' from 'BB'.
The rating on its preferred securities has been downgraded to 'CCC+' from 'B+' and the quarterly income preferred securities (QUIPS) have been lowered to 'C' from 'B+'.
In addition Fitch has withdrawn WorldCom's 'B' commercial paper rating as there are no outstandings under the program.
The rating action also applies to Intermedia Communications senior unsecured debt, which has been lowered to 'B-' from 'BB-'.
The ratings on Intermedia's preferred securities have been lowered to 'CCC' from 'B'.
All of the company's ratings have been placed on Rating Watch Negative.
This rating action follows the company's announcement to defer interest payments on the Cumulative Quarterly Income Preferred Securities (QUIPS) issued by MCI Capital I.
While Fitch recognizes the company's effort to conserve cash through the deferment of payments on the QUIPS, the elimination of the MCI dividend, reduction of capital expenditures, and the exit of the wireless reseller business, Fitch believes that these are signs that point to the extent the current difficult industry dynamics coupled with the potential for continued customer network re-grooming and churn are pressuring the company's ability to generate free cash flow to the level of the company's guidance.
Generation of free cash flow will be critical for the company to service upcoming debt maturities.
The company will have approximately $3.2 billion of maturities, including approximately $1.5 billion of re-marketable or putable securities maturing in 2003, and an additional $2.6 billion in 2004.
Fitch anticipates that, in the current circumstances, the company will have limited access to capital markets constraining its financial flexibility.
Absent significant improvements in free cash flow, Fitch acknowledges the potential for a restructuring, given the significant maturities in 2003, 2004 and beyond.
While the company indicates that it is making good progress with negotiating its bank facility, the process has taken longer than expected, elevating the potential risk that the company may not be able to obtain a facility with the size and terms that were previously indicated.
The Rating Watch Negative is reflective of the uncertain outcome of the company's negotiations with its bank group.
The Rating Watch Negative will be resolved pending review of the final terms and conditions of the bank facility.
06/20/02 13:11 ET
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