WorldCom debt up as government restores contractor rights

By Paul Deckelman and Sara Rosenberg

New York, Jan. 7 - WorldCom Inc. debt was quoted Wednesday at solidly higher levels after the federal government ruled that the bankrupt telecommunications giant could once again be eligible to receive lucrative federal contracts - a right it had lost in the wake of its accounting scandal.

WorldCom "was the big news," a trader said, pegging the Ashburn, Va.-based telecom operator's corporate bonds at 37.125 bid, 38.125 offered, up about two points on the session.

He noted that the bonds had been trading around 33.75 bid, 34.125 offered last Friday, the first official trading session of 2004. On that basis, he said, the bonds "are up 10% since the start of the year, a pretty good move."

He saw the bonds of WorldCom's MCI subsidiary holding steady in an 81.5 bid, 82.5 offered context, "pretty much where they had been."

At another desk, a distressed-debt trader quoted the WorldCom bonds in a 37-38 context and said that MCI and the bonds of Intermedia Communications, another WorldCom company, had also "moved up a little too, probably up a point," although he called that "no big deal."

The trader said that WorldCom was being pushed up by several factors, including the fact that the company is expected to emerge soon from Chapter 11, where it has been since 2002, and "the announcement that they can keep $300 million."

That presumably was a reference to the decision, announced earlier in the day by the government's General Services Administration that WorldCom - which in the past had done about a billion dollars a year of business with the government - would once again be eligible to bid on government contracts, including the renewal of contracts it currently has with Washington.

As it turns out, the timing of the announcement is fortuitous for WorldCom, since an almost $400 million a year contract (some reports had earlier put it at $300 million) under which MCI supplies phone services to various government agencies is scheduled to expire on Jan. 10 - but the GSA had previously indicated that it was leaning toward extending the contract, provided WorldCom showed proof that it would be a responsible corporate citizen. In that case, the agency had indicated that it would lift the contract ban, which it had imposed back in July, as WorldCom wallowed in an $11 billion accounting scandal.

Since then WorldCom - which replaced the old management under which the scandals took place - has put procedures in place to ensure that such a fiasco could not be repeated, including appointing an ethics officer, putting its entire work force through ethics training and adding various internal checks and balances.

As part of the GSA's conditions for lifting the contract ban, WorldCom agreed to close government scrutiny of its internal controls, accounting practices and corporate ethics for a three-year period.

WorldCom's debt has been firming in recent weeks on market speculation that it would be emerging from Chapter 11 soon; as part of its transition to a post-bankruptcy mode, WorldCom has already adopted MCI as its legal name, in keeping with the practice of many companies seeking to change their image as they put the bad times of bankruptcy behind them.

A distressed-debt trader said that his shop would probably soon stop trading WorldCom and several other bankrupt or distressed names whose situation seemed to be improving and whose bonds were likewise getting better.

"Who knows what the next baby is going to be?" he lamented.

Exide, Finova, Adelphia firm

Elsewhere, Exide Technologies Inc.'s 10% notes were being quoted at 23 bid, up a point from Tuesday, up seven points from Monday's close and up more than 20 points from where they had been at the tail end of 2003, just before a judge hearing the Princeton, N.J.-based battery maker's bankruptcy case rejected management's reorganization plan, saying it undervalued the company and did not provide an adequate return for its creditors. Exide and the creditors are in talks, and are supposed to report back to the judge on their progress on or before Jan. 22.

A trader said that the 7 ½% notes due 2009 of Finova Group were "a little firmer," at 65, while Mirant Corp.'s bonds were also "a little stronger on the day."

Adelphia Communications Corp.'s Century Communications unit's bonds were seen "a little stronger," a trader opined, its 8¾% notes due 2007 pushing up to 102.5 bid from 99, although parent Adelphia's bonds, such as its 10 7/8% notes due 2010 were easier, finishing at 96.25 bid, down from 97 previously. Adelphia's 10¼% notes due 2011 were likewise easier, going to 96.5 bid from 98 previously, thus giving back some of the strong gains that had been notched over the past few sessions on investor hopes of an upcoming exit from Chapter 11 of the Denver-based cable television operator.

Also on the downside, Levi Strauss & Co. bonds continue to fall back, with the San Francisco-based blue jeans maker's bonds down another point on Wednesday, to 63.5 bid, 64.5 offered.

Other distressed names, however continued to hover around the levels at which they have recently been seen; Italian dairy products maker Parmalat's dollar-denominated 6 5/8% notes due 2008 continue to languish around the same 21-22 context they've seen for the past several sessions, along with the company's euro-denominated bonds.

Enron Corp. bonds were seen continuing to hang around the 23.5-24 context they've recently held, apparently not much moved on the news Tuesday that the judge overseeing the Houston-based energy trader's bankruptcy case had given preliminary approval to its disclosure statement - a key hurdle in the company's effort to get out of bankruptcy, since its plan will now be going to the creditors for their approval.

And a source quoted the bonds of troubled St. Louis-based chemical maker Solutia Inc. "trading sideways," its 11¼% notes due 2009 at 94.75 bid, its subordinated 7 3/8% bonds due 2027 at 39 bid, down a point, and its 6.72% bonds due 2037 "all over the place, quoted variously at levels as low as 38 bid and as high as 41 bid before settling in around 38 bid, 39 offered, largely unchanged on the day."

Things are "sort of quiet these days for those us in distressed," a trader said, noting that a lot of investors focused on the high yield market were opting for more secure credits.

Still, he said, "things are up - any new quotes I get are all higher."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.