WorldCom swings lower minutes before close; Mirant slowing down; Bethlehem Steel firms

By Carlise Newman

Chicago, July 31 - WorldCom Inc. bonds were thought to have stabilized finally Thursday after days of being bogged down by accusations of fraud from competitors. But at the very end of the trading session, they dropped again after headlines flashed by traders saying a U.S. agency was trying to bar the company from new government contracts.

The General Services Administration, which handles government contracts, said an official who reviewed the matter found that the company "lacks the necessary internal controls and business ethics" and should be prohibited from competing and receiving new federal contracts.

"It is important that all companies and individuals doing business with the federal government be ethical and responsible," GSA administrator Stephen Perry said in a statement.

The announcement immediately suspends the company from being eligible to compete for new federal contracts.

WorldCom bonds opened Thursday at 27½ bid, 28 offered and remained around those levels most of the day until 4.30 p.m. ET when the headlines flashed. After that traders had varying views of the prices. One said the bonds dropped to 25 bid, 26 offered, while two other desks said 24 bid, 25 offered was the closing price.

"It was instant. They just dropped right when the news came out," a trader said. "The bonds seemed to have steadied at around 26. Now we'll see where they open tomorrow."

The Ashburn, Va.-based telephone company said in a statement that it will continue to serve existing government customers despite the proposal. WorldCom said the development would not affect the timing of its emergence from Chapter 11 protection.

In recent days the company has been facing opposition from its rivals, which have accused WorldCom of rerouting telephone calls through Canada as a way to avoid tariffs owed to other telecom companies for use of their networks.

The rerouting practice is said to have been going on for 10 years but the charges only surfaced in the last 10 weeks when a former WorldCom employee alerted the FBI about a company project known as "Canadian Gateway," according to various news reports, starting with one in The New York Times on Sunday.

Elsewhere Mirant Corp. actually has temporarily paused its hotbed of activity, with its 8.3% notes due 2011 falling only a ¼ point to end the session at 80¾ bid, 81¾ offered. Mirant America Generation's bonds have been in the 76 bid, 77 offered range, and fell ½ point Thursday.

Mirant's securities have been much less active over the last few sessions after trading actively and moving mostly downwards in the wake of the company's Chapter 11 filing, made when its proposed debt exchange failed to attract sufficient support.

Bethlehem Steel's bonds were "ratcheting up," a trader said.

"They opened at about 6½ bid Wednesday, and by today's close, they were around 8 bid," he said. "The filings don't seem like much of a motivator, but that's anyone's guess."

Bethlehem Steel filed its disclosure statement and reorganization plan Tuesday with the court, and as a result, unsecured creditors will receive a share of the liquidating trust assets, in the form of beneficial interests in the liquidating trust.

The estimated percentage recovery is dependent on, among other things, the total amount of unsecured claims that become allowed claims and the value of the consideration shares.

General unsecured claims total $12 million, but Bethlehem estimates that the amount will rise to $5 billion, after deducting duplicate claims, amended and superceded claims, previously paid claims, claims not supported by the debtors' books and records, claims that are covered by insurance, and claims that are subject to other objections. In addition to the company's bonds, this class includes claims of the Pension Benefit Guaranty Corp. Recovery for this class is put at 0.3% in the plan.

Shareholders will receive nothing.

Bethlehem owed certain lenders $290 million under a credit facility secured by liens on its inventory. On the closing date of the sale of Bethlehem to International Steel Group, which was in May, Bethlehem repaid all borrowings under the inventory credit facility.

Elsewhere, Adelphia Communications Corp., which had been very active in recent weeks, was tamer Thursday. The 10¼% notes due 2011 were seen 68.5-69.5 and the 10¼% notes due 2006 were seen at 65 bid, both unchanged.

Minneapolis airline Northwest Airlines Corp.'s 7 5/8% notes due 2008 were seen at 73 bid, up 1½ points, a trader said.

And St. Louis wire manufacturer International Wire Group's 11¾% notes due 2005 were up ½ point to 64 bid.

(Paul Deckelman contributed to this story.)

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