U.S. Corporate Bonds: WorldCom Attractive to Buyers (Update1)
(via WCOM thread)
Bloomberg News
July 24, 1998, 12:05 p.m. ET
(Adds investor comment on demand for WorldCom bonds in 3rd
paragraph and description of trading strategy in WorldCom bonds
in 7th through 9th paragraphs.)
New York, July 24 (Bloomberg) -- WorldCom's proposed bond
sale of up to $5 billion is already attracting investors eager to
buy some of what could be the biggest corporate bond sale ever.
The company, which is poised to become the No. 2 U.S. long-
distance telephone company after it buys MCI Communications
Corp., has not yet proposed any interest rates for the bonds,
though investors are already predicting strong demand. Large bond
sales often carry wider spreads over Treasuries than smaller
sales, and WorldCom is a highly regarded company with a history
of strong profit growth.
''Everyone will want to get involved,'' said James Claire, a
senior trader at First Capital Group, a division of First Union
National Bank of North Carolina. He said WorldCom is among their
top telecommunications picks and one of their largest holdings.
''We plan to add to it when the new deal comes.''
Yesterday, WorldCom said second-quarter earnings rose more
than fivefold on surging sales of Internet and other data
services.
Investors say WorldCom is preparing to sell $3 billion to $5
billion of bonds, though details are sketchy. Presentations to
investors are expected the first week of August.
Because large sales typically carry extra yield to attract
enough buyers, they often outperform other bonds in secondary
market trading. Niagara Mohawk Power Corp.'s 7 3/4 percent 10-
year notes, the largest part of last month's $3.45 billion sale,
are up about 4 1/4 points since the sale, and are quoted at 7.19
percent. Their spread over Treasuries -- set at a generous 225
basis points at the sale -- narrowed to 175 basis points.
Some investors are already positioning themselves to take
advantage of what they hope will be a similar pattern for
WorldCom's bonds.
Trading Strategy
Claire said some investors are probably selling their
existing WorldCom holdings to make room for the new bonds, which
will be more actively traded and, at least initially, stand a
better chance of strengthening than the older securities.
The prospect of a flood of new WorldCom bonds helped widen
the yield spread between telephone bonds and Treasuries.
WorldCom's outstanding 7.75 percent notes due in 2007 widened 4
basis points to 105, traders said. U S West Inc.'s 6.375 percent
notes due in 2008 -- part of the local phone company's $3.1
billion sale last month -- widened about 3 basis points to 98.
In January, WorldCom filed with the Securities and Exchange
Commission to sell as much as $5 billion of debt securities. If
the sale turns out to be that much, it would exceed the $4.3
billion record for corporate bond sales set by Norfolk Southern
Corp. last year.
The WorldCom sales comes at a time when many companies are
eager to take advantage of low interest rates. Bausch & Lomb
Inc., Host Marriott Corp. and a handful of other companies are
gearing up to sell as much as $5.5 billion of bonds next week.
Among other telephone companies, Chicago-based Telephone &
Data Systems Inc. plans to sell $150 million of 30-year bonds at
a yield of about 140 to 150 basis points more than Treasuries.
Thirty-year Treasury bonds are unchanged at 5.66 percent.
Earlier this month, the Treasury bond hit 5.57 percent, the
lowest since the government started regular sales of the securities in 1977.
''Rates are so attractive we've fixed a large part of our
(financing) needs,'' said Dale Cable, treasurer at American
Greetings Corp., which sold $300 million of 30-year bonds
Wednesday. The second-largest greetings card company plans to use
proceeds to repay short-term debt.
--Kathleen Spillane in the New York newsroom (212) 318-2034 with
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