Submitted by: Submitted by adgatsby
Views: 10
Words: 5447
Pages: 22
Category: Business and Industry
Date Submitted: 05/22/2016 08:52 AM
rP
os
t
UV0267
Rev. Oct. 28, 2009
WORLDCOM, INC.: CORPORATE BOND ISSUANCE
op
yo
Gary Brandt, treasurer of WorldCom, Inc., could not remember a year quite like the last.
WorldCom had stunned the financial community in November 1997 with a $37-billion bid for
MCI Corp., besting rival bids by British Telecommunications (BT) and GTE. Now WorldCom
was about to do the same in the corporate bond market as it readied to issue what could be the
largest corporate debt issue ever. With the MCI deal scheduled to close soon, financing had to be
arranged to repurchase the 20% stake BT held in MCI. WorldCom announced, through its
investment banker, Salomon Smith Barney, intentions to market $3 billion to $4 billion of debt
in the first week of August 1998. If there was sufficient demand, the offering could be increased
to $6 billion, exceeding by a considerable margin the previous record of $4.3 billion, set by
Norfolk Southern Railroad in May 1997.1 The market reception and pricing of the bond were
made more difficult by the turbulent conditions in the bond and equity markets in recent weeks.
Brandt had received some preliminary estimates of the costs of the issue from his bankers. But
because it would be the firm’s task, not the bankers’, to see that the terms of the debt were
eventually met, he decided to develop his own estimate of the costs of the new bonds.
tC
Company
No
WorldCom was started in 1983 in Hattiesburg, Mississippi, as Long Distance Discount
Services (LDDS) by Bill Fields and a group of investors that included Bernie Ebbers.2 The
breakup of AT&T, in 1983, encouraged other companies to enter the long-distance telephone
business. LDDS leased a Wide Area Telecommunications Service (WATS) line and resold time
to other businesses. The firm initially did well until WATS line prices increased.
1
If successfully completed, the WorldCom offer would also overshadow the largest junk-bond offering: RJR
Holdings Capital’s $6.11-billion deal priced in 1989. Because...