Worldcom Bond Issuance

WorldCom Bond Issuance

Dear Mr. Chairman,

We are very appreciative of the opportunity to offer our advice on the situation WorldCom faces in regards to issuing bonds to help finance the MCI acquisition. Following are the major points that we want to take into account as we analyze WorldCom’s best next steps.

History of WorldCom

Since Mr. Ebbers was named CEO of WorldCom in 1985, he brought the company back into profit-making mode through a strategy of cost reductions and improved customer service. After the firm began to see profits, the company then used those profits to purchase troubled long-distance start-ups in order to expand its business. After a series of acquisitions and mergers, the firm became the first firm to offer local and long distance services over its own network.

So now, in 1997 we know that WorldCom has offered to purchase MCI for $37 billion. We realize how important this purchase is to you and the rest of the board, as it will allow you to become the second biggest long-distance telephone company in the US next to AT&T. However, in order to complete this purchase, WorldCom has to raise up to $6 billion over the next two years to purchase British Communications’ 20% stake in MCI. We know that you plan to do this by issuing 4 tranches of debt: $1.5 billion in 3-year notes; $1 billion in 5-year notes; $2 billion in 7-year notes; and $1.5 billion in 30-year notes. We also note that currently, many market analysts believe that WorldCom’s debt will be upgraded to the low single-A rating in the next year. But before we address those projections, let us continue analyzing the many other factors affecting WorldCom’s issuance of debt.

Timing of Issuing Bonds

This is an interesting time for WorldCom to be issuing bonds. We admit that there are great reasons that suggest this is the perfect time to issue the bonds. The Asian financial crisis and the political crisis in the US has caused the stock market to take a beating,...