1.Is it a good time to issue?

What factors favor issuing now and

what factors do not?
WorldCom could choose not to issue bonds considering the prevailing volatile
economic climate at that time. Volatile international markets coupled with a
projected slowdown in the American economy could make the debt issuance risky.
There were indicators at that time of a potential slowdown in American corporate
profitability in the second quarter of that year. Political uncertainty in the US at
that time, adds to the conundrum. Additionally, some $40 billion of debt issuance
was scheduled to price, the same week that WorldCom was looking to issue its
debt which could lead to market saturation in terms of investor demand to purchase
debt. WorldCom’s goal of a single $6 billion debt issue might be too large when
considering above mentioned economic and political uncertainties.

On the other hand, Moody’s and S&P are expected to raise WorldCom’s debt from
Baa2 and BBB+ to the low single A area in the coming year. This is a vital
indicator that WorldCom’s debt is relatively secure. Although $40 billion in debt
issuance is scheduled to price the same week that WorldCom intends to issue its
debt, WorldCom’s higher debt rating should make it a favorable investment for
potential investors when compared with the rest of the market. Also, WorldCom’s
merger with MCI, which is forecasted to generate $30 billion in revenues and
WorldCom’s net income increase of about 418% from the previous year, translated
to an increasing stock price and confidence amongst investors with regards to
WorldCom’s future performance. Additionally, with the looming economic
uncertainties in the American economy, investors were moving their money from
stocks, to corporate and treasury securities, a trend which will work in
WorldCom’s favor when the time comes for them to issue their debt.

WorldCom’s market perception as an industry leader combined with growing

revenues and a debt rating upgrade, could make this a good time for WorldCom to
issue $6 billion in debt, despite of the then prevailing political and economic
uncertainties.
2. What risks does WorldCom face in issuing up to $6 billion in
debt? How will investors and the market react to the large size of
the offering? Would a series of smaller issues be a better strategy?
WorldCom faces a number of risks by issuing $6 billion in debt. First of all, the
timing seems risky considering there was $40 billion in debt (two to three times the
usual amount) scheduled to be issued during that same week they were going to
issue theirs. This large supply coming to market was putting pressure on corporate
bonds. And risk being priced at a concession to outstanding issues. They also
needed to

* $40 billion dollars in debt was to be issued the same week as when WorldCom
was going to issue the debt

* if they don't raise the entire 6 billion dollars in debt financing, they have to
raise the remainder of the funds through alternative methods...quick

* the bank loan with 7 billion due in 2 years and 5 billion due in 4 years is in
jeopardy, if WorldCom does not raise the complete 6 billion dollars in this debt
issuance

* investor reaction

* negatives: bad foreign markets, uncertain domestic situation, record 40

billion dollar debt issuance could saturate market reaction for buying debt

* positives: Page 4, 1st two paragraphs

* investors moving to corporate and treasuries securities.

* since bonds are paid in future and we are determining what interest we are
paying today, there is an assumption made about tax rates.

* more interest rate that govt bonds

* smaller issues: risky because situation of the company could change down the
line and there is unprecedented interest/confidence in the company right now.
Economic uncertainties can affect a corporation if too much of debt is taken
through bonds.