WorldCom Plans $3 Bln to $5 Bln of Bonds in 4 Parts (Update1)
Bloomberg News
August 4, 1998, 6:09 p.m. ET
WorldCom Plans $3 Bln to $5 Bln of Bonds in 4 Parts (Update1)
(Updating to add investors' comments. Adds background on the
telecommunications industry.)
New York, Aug. 4 (Bloomberg) -- WorldCom Inc., poised to
become the second largest U.S. long distance phone company, plans
to sell as much as $5 billion of bonds, with buyers eager to
invest in what could be the biggest corporate debt sale ever.
WorldCom already is benefiting from its purchase of MCI
Communications Corp. for $45.8 billion in stock and assumed debt.
Its bond ratings were boosted recently, a sign that the
acquisition is making the Jackson, Mississippi-based company more
creditworthy.
''We have a very high regard for the company,'' said Jerry
Paul, who manages about $3 billion of fixed income securities at
Invesco Trust Company in Denver. ''I've made a lot of money'' on
earlier investments in WorldCom bonds, he said.
WorldCom and Salomon Smith Barney, which is arranging the
bond sale, have proposed selling bonds at the following yield
spreads over Treasuries, according to investors:
Three-year notes at 65 to 70 basis points,
Five-year notes at 80 basis points,
Seven-year notes in the low 90s basis points,
30-year bonds at 130 to 135 basis points.
'Benchmark Issue'
The size of the sale hasn't been set. At $3 billion to $5
billion, ''it's going to be a benchmark issue,'' said Kevin
McClintock, who oversees about $90 billion of taxable fixed-
income assets at Dreyfus Corp. He's considering buying the bonds.
If there's demand for all $5 billion of bonds, investors
said they expect a 10- or 20-year maturity will be added.
At $5 billion, WorldCom's sale would exceed the $4.3 billion
record for corporate bond sales set last year by Norfolk Southern
Corp. The biggest U.S. corporate sale this year was $3.45 billion
by Niagara Mohawk Power Corp.
''There are indications there's interest for all $5 billion
of bonds,'' said Cathy Bunting, who helps manage about $7.5
billion of fixed income at Back Bay Advisors. Bunting, who
attended an investor presentation by Salomon Smith Barney, said
she's keen to buy the bonds, even if the proposed spreads are
''on the tight side.''
Investors had expected the company would offer wider yield
spreads to ensure such a large sale is snapped up. Instead, the
proposed spreads are in line with existing WorldCom bonds, and
with other similarly rated telephone bonds.
'Good Value'
Five-year notes of ''BBB'' rated telephone companies, for
instance, are yielding 6.23 percent, level with the preliminary
yield-expectations, according to Bloomberg analytics. The yield
proposed on WorldCom's 30-year bonds is about 6.99 percent, only
slightly wider than the average 6.73 percent for similar bonds.
''People would love to see another 5 basis points or so,''
said Bunting. ''But if you look at WorldCom as potentially a
single-A credit, which we do, then it's going to be good value at
these levels.''
Standard & Poor's Corp. bolstered enthusiasm for the bonds
last week when it raised the company's debt rating two notches to
''BBB .'' Earlier, Moody's Investors Service raised its rating to
''Baa2.''
The WorldCom sale comes as the telecommunications industry
is consolidating and many companies are borrowing large amounts
to develop new communications networks. Bell Atlantic Corp. said
it will merge with GTE Corp. for $53 billion in stock, creating
the largest U.S. phone company. Telephone giants AT&T Corp. and
British Telecommunications Plc also are in a joint venture for
international services.
AT&T Corp., the largest U.S. long distance phone company,
also agreed to buy Tele-Communications Inc. More than $36 billion
of telecommunication bonds have sold this year, topping the $30
billion raised all of last year, said Securities Data Co.
Proceeds from WorldCom's sale will be used to reduce debt
and pay expenses related to the MCI purchase. WorldCom agreed in
November to buy MCI for $51 a share in stock and assumed debt.
The purchase of MCI ''makes them a big player,'' said
Leonard Lovito, who helps oversee about $430 billion of fixed-
income assets at Chase Asset Management. ''We like the credit.''
Salomon Smith Barney wouldn't comment on the sale. Credit
Suisse First Boston and Lehman Brothers will help manage the
sale.
--Lee Theodoros in the New York newsroom (212) 893-3779, with |
