WorldCom and Bell Atlantic Ready Huge Debt Offerings
[Telecom equipment suppliers must be salivating...]
interactive.wsj.com
By HEATHER BOURBEAU, SILVIA ASCARELLI and GAUTAM NAIK
Staff Reporters of THE WALL STREET JOURNAL
Telecommunications companies are set to break two records in the
corporate-bond market this week.
WorldCom Inc., Jackson, Miss., Monday began presentations to offer as
much as $5 billion in debt, which would be the biggest-ever corporate
bond sale.
And Bell Atlantic, New York, Monday started marketing what Securities
Data Co. says is the biggest-ever exchangeable-note deal, a $3 billion sale
of bonds convertible in four years to shares of Britain's Cable & Wireless
Communications PLC. That company was formed last year through the
merger of four U.K. cable operators. Bell Atlantic holds 278 million
shares, or 18.5% of the company, and Cable & Wireless PLC, the
London telecommunications company, holds 53%.
Bell Atlantic's exchangable-note deal is expected to be priced in the next
two weeks.
If WorldCom sells as much as $5 billion of bonds, which is expected, it
would easily surpass a $4.3 billion sale in May 1997 by Norfolk Southern
Corp., the biggest corporate-debt sale so far. A 1989 sale by RJR
Holdings Capital had a face amount of $6.1 billion but raised only $4
billion because some of the bonds were sold at a discount, according to
Securities Data.
Some investors expect a good reception for WorldCom.
"It's a difficult market, but WorldCom has a good story and it's in an
industry that's growing by leaps and bounds," said Marion Boucher Soper,
telecommunications analyst at Bear, Stearns & Cos.
Indeed, other corporate-bond offerings have been suffering in recent days
as investors have waited to participate in WorldCom's offering.
Some portfolio managers say the generally weak market could force a
relatively low price for WorldCom bonds, which translates to higher
yields. "There is some momentum on [WorldCom's] credit side, and it's a
big deal that's going to have to come cheaply," said Andy Palmer, who
helps manage $2 billion of bonds at ASB Capital Management.
WorldCom will use the deal's proceeds to refinance bank borrowings
incurred to pay $7 billion to British Telecommunications PLC for its 20%
stake in MCI Communications Corp.
WorldCom and lead underwriter Salomon Smith Barney, a unit of
Travelers Group, declined to comment on the deal, which is expected to
price late Wednesday or Thursday.
As for the Bell Atlantic deal, the company tentatively plans to offer
seven-year bonds that could be exchanged for shares in Cable & Wireless
Communications beginning July 1, 2002.
Bell Atlantic hopes to account for its proposed merger with GTE Corp. as
a pooling-of-interest transaction. That prohibits Bell Atlantic from shedding
any significant assets for at least two years after the close of the merger, a
spokesman for Bell Atlantic said. The company expects the GTE merger
to close in June 2000.
Bell Atlantic's technique is increasingly used by companies to sell minority
interests. It allows them to raise money more cheaply than a traditional
bond offering. An exchangeable bond often lets a company cash in on its
ownership in another company while delaying the payment of capital-gains
taxes until the bonds are converted into shares. Under an immediate sale,
the gains would be subject to capital-gains tax immediately. The bigger the
gains, the more valuable the exchangeable-bond strategy becomes.
American depositary receipts of Cable & Wireless Communications fell
$5.0625, or 9.5%, to $48.4375 in New York Stock Exchange composite
trading Monday. It fell on an arbitrage play between the current share
price and the expected pricing of the bonds. The price for converting the
bonds into shares is tentatively set at a 28% premium to a
still-undetermined closing share price. By temporarily depressing the share
price, investors are lowering the final price they'll have to pay to acquire
the shares via the bond offering.
Cable & Wireless Communications said it welcomed the Bell Atlantic
announcement. "It's a litmus test for investor confidence in CWC," a
spokesman said.
Warburg Dillon Read, the investment-banking arm of UBS and
bookrunner in the transaction, declined to comment.
The offering will be sold globally, including to selected U.S. investors
under Rule 144a.
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