Worldcom, Inc.: Corporate Bond Issuance: Company

UV0267
Rev. Apr. 1, 2016
WorldCom, Inc.: Corporate Bond Issuance
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.
Company
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.
Following a period of losses, the board appointed Ebbers chief executive officer (CEO) in 1985. Ebbers
immediately instituted cost-control measures, began stressing customer service to new clients, and customized
each client’s service to its calling patterns. Within six months, LDDS was back in the black.
LDDS capitalized on its own success by acquiring other long-distance start-ups experiencing similar
trouble. Employing the same turnaround procedures with other failing companies, LDDS was able to greatly
expand its business at low cost. In 1989, LDDS merged with Advantage Company, a publicly traded long-
distance telephone company, making LDDS public as a result. By the end of 1991, the company had
purchased five additional companies, for a total of $100 million, expanding its network to 27 states. In 1992,
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 many of the RJR bonds sold at discount, proceeds amounted to only $4 billion.
2 Information on WorldCom’s history was developed from annual reports and Dow Jones News Retrieval Service.
This case was prepared by Susan Chaplinsky, Associate Professor of Business Administration. It was written from public data as a basis for discussion
rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  1998 by the University of Virginia Darden School
Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without
the permission of the Darden School Foundation.
This document is authorized for use only in Mauricio Jara's Dirección de finanzas at Universidad de Chile from Mar 2021 to Sep 2021.
Page 2 UV0267
LDDS merged with Atlanta-based Advanced Telecommunications and became the fourth-largest long-
distance carrier in the United States.
The pace of acquisitions increased as the prominence of the company grew. In 1993, LDDS merged with
Metromedia Communications and Resurgens Communications Group. LDDS Communications merged with
IDB Communications Group, a satellite-communications company, in late 1994. The next year, the company
spent $2.5 billion for William Cos. subsidiary WilTel’s 11,000-mile fiber-optic cable network. To reflect its
growing global aspirations, the company changed its name to WorldCom in 1995.
The Telecommunications Act of 1996 substantially rewrote the industry’s rules by allowing local-access
telephone companies and long-distance companies to compete against each other. WorldCom took advantage
of the change with the $14.4-billion purchase of local-access provider MFS Communications in 1996, which
included the subsidiary UUNET Technologies (an Internet access provider). With WorldCom’s subsequent
acquisitions of the America Online networks (ANS Communications) and CompuServe networks
(CompuServe Network Services), the company became a leader in this rapidly growing market. As a result of
the MFS merger, WorldCom became the first company since the breakup of AT&T to offer local and long-
distance services over its own network.
All of the previous acquisitions, however, paled in comparison to WorldCom’s offer to purchase MCI
Corp. for $37 billion in November 1997. The offer nullified MCI’s previous pact with British
Telecommunications and beat a rival bid from local-service provider GTE. Completion of the deal would
move WorldCom from being the fourth-largest long-distance telephone company in the United States to
being second only to AT&T. The combined company, MCI-WorldCom, would have more than $30 billion in
1998 revenues. The boards of directors of both companies unanimously approved the transaction.
The Bond Issue
In January 1998, the firm filed a shelf-registration statement with the U.S. Securities and Exchange
Commission seeking permission to raise up to $6 billion over the next two years.3 Most market observers
expected WorldCom to raise this amount of funding through several smaller debt offers, and thus were
somewhat surprised to learn in July that all $6 billion might be raised in one offer. WorldCom planned to use
its own stock to buy the public shares of MCI that did not belong to British Telecommunications. As part of
the deal, WorldCom agreed to pay BT $6.94 billion in cash for its 20% stake in MCI. WorldCom had a large
commercial-paper program, however, and MCI was cash rich following the sale of its Internet business to
Cable & Wireless for $1.75 billion. In addition, WorldCom had recently agreed to a new $12-billion bank
credit facility. The credit facility consisted of a $5-billion term loan due in 2002 and a $7-billion, 364-day
revolver that could be renewed for two more years.4 All these factors seemed to argue in favor of a smaller
public offer. WorldCom did appear to have continuing cash needs to fund future acquisitions and large-scale
capital improvements. Just the previous week, MCI had announced the purchase of Brazil’s long-distance
carrier, Embratel, for $2.3 billion. WorldCom was spending $2.5 billion a year to improve its infrastructure.
3 Shelf registration enabled large investment-grade issuers to qualify in advance for SEC approval of future security sales. Once the shelf registration
was approved, an issuer could issue any amount up to the shelf limit without further regulatory delay. This procedure afforded issuers greater flexibility
to respond in a timely manner to market conditions.
4 The interest rate on the credit facility was tied to the Eurodollar borrowing rate plus an applicable margin of approximately 40 basis points. A
basis point was 0.01%, or 0.0001; 100 basis points (bp) equaled 1.0%. For July 1997, the 3-month Eurodollar rate was 5.57%, and the 3-month
commercial-paper rate was 5.50%.
Page 3 UV0267
For his part, Brandt believed that WorldCom had ample need for the funds, and he was hopeful that
market conditions would be such that the firm could raise $6 billion in one shot. Initially, he planned to use
the bank debt to pay BT, and thereafter to pay off the bank debt with the newly issued bonds.
The issue called for four tranches of debt to be offered:
 $1.5 billion in 3-year notes
 $1.5 billion in 30-year bonds
Following market convention, the debt issues would carry an annual fixed coupon rate, but interest would be
payable to holders on a semiannual basis. No specific assets or collateral were pledged on the bonds, and only
a few standard covenants appeared in the indenture. In the words of one market observer, WorldCom’s offer
was “plain-vanilla debt—a whole lot of plain-vanilla debt.” Exhibit 1 lists the covenants on the credit facility
and proposed public bond issue.
From the firm’s point of view, now seemed to be a good time to issue. The MCI merger had boosted
awareness and interest in the firm. Investors had responded favorably to the announcement of the merger.
(Exhibit 2 presents evidence on the stock-price response to recent telecommunications mergers.) The
company had cobbled together various communications companies to offer business customers everything
from domestic and long-distance telephone service to Internet access, and by the summer of 1998, many
observers viewed WorldCom as the industry leader. “They’re the farthest ahead in giving the customer end-
to-end telecommunications solutions. They have the model that the other phone companies are trying to
emulate,” said Patrick Cassidy, an analyst at T. Rowe Price.5 In addition to the glow of the MCI-WorldCom
merger, WorldCom had recently reported second-quarter revenues of $2.61 billion, a 45% increase over the
same period of the previous year. Net income was $228 million, compared with $44 million the previous year.
Exhibit 3 gives selected information on WorldCom’s financial performance. Exhibit 4 compares WorldCom
with other long-distance telephone companies.
It was widely believed by market observers that WorldCom’s debt, which was currently rated Baa2 by
Moody’s Investors Service and BBB+ by Standard & Poor’s, would be upgraded to the low single-A area in
the upcoming year. Exhibit 5 provides the bond-rating definitions.
Market Conditions
The devaluation of the Thai currency in June of 1997 precipitated a major financial crisis that spread to
Malaysia, Indonesia, Korea, Hong Kong, and other regional markets over the ensuing months. In its wake,
these countries experienced depressed economic conditions and plummeting equity markets. U.S. financial
markets also experienced considerable turmoil and uncertainty over the extent that the global crisis would
hurt the U.S. economy. These concerns were most acute in the months following the Hong Kong crisis in
October 1997, and eased somewhat in the first half of 1998, as the U.S. economy showed continued strong
performance. In mid-July, however, fears of a deepening crisis resurfaced. The Japanese yen deteriorated to
5 “WorldCom Readies for a Record Investment Grade Deal and Corporate Bond Yields Rise in Anticipation,” Barron’s (August 3, 1998): MW11.
Page 4 UV0267
an eight-year low against the U.S. dollar, as investors lost confidence in the government’s ability to resolve its
banking crisis. The weakness in Japan threatened to engulf China, which had resisted devaluing its currency.
In addition, the domestic U.S. economy showed signs of slowing corporate profitability in the second quarter.
Finally, a mounting political crisis threatened the U.S. president, Bill Clinton, raising concerns about his
effectiveness and tenure in office. All these factors combined to take a toll on the U.S. equity markets. The
Dow Jones Industrial Average dropped 99 and 300 points on Monday and Tuesday of the projected issue
week. Tuesday’s drop was the third-largest percentage loss in Dow history. Similar percentage losses were
registered for the S&P 500 and NASDAQ averages. Analysts were sharply divided on the portent of these
events for future economic activity. As money left the stock market, some flowed into corporate and
Treasury securities. Exhibit 6 gives information on the movements in interest rates in recent weeks.
Exhibit 7 provides a longer-term view of corporate and government rates and spreads.
A second factor of concern was the large volume of debt issues scheduled for issuance in the first week
of August. A heavy calendar of debt issues had been a feature of the market all year. Investment-grade issues
were on course to beat last year’s record, while high-yield issues were already within striking distance of last
year’s record.6 Some $40 billion in debt issues, two to three times the usual amount, was scheduled to price
the same week as WorldCom’s issue. The large supply coming to market put pressure on corporate bonds.
The recent turmoil had also raised concerns among investors about the quality of the debt. Jacques de St.
Phalle, head of fixed income at Bear Stearns, noted that “investment-grade companies were taking two to
three days to market deals before pricing them. That’s something only junk-bond investors with complicated
stories used to take time out for. And when new deals do get sold, they are priced at a concession to issues
already outstanding.”7 Long-term corporate yield spreads over Treasuries had increased over the last several
weeks. Further widening of the spread could occur if the markets did not settle soon (Table 1).
Table 1. Volume of U.S. security issues.

(in billions of $US)
1998 1997 1997 1996
(through 6/30) (through 6/30)
Corporate debt
Investment grade $380.0 $246.0 $721.5 $510.0
High yield 99.8 58.3 125.0 72.2
Common stock $ 73.0 $ 47.2 $118.0 $115.0
Source: Security Data Corporation.
In the days leading up to the issue, the firm’s investment bankers gathered information from market
sources in anticipation of the final pricing meeting, scheduled for August 6. The syndicate desk at Salomon
Smith Barney was responsible for pricing the new bonds. The pricing process began by determining the
“price talk” for the new issue. Basically, this amounted to finding the approximate spread over Treasuries that
investors would demand for each tranche of debt. Once the syndicate desk set the price talk, the deal was
marketed to investors and the “book” was built. The book was simply the number of orders for WorldCom
bonds received at each spread level in the price talk. If investors were clamoring for the deal, then the bond
would carry a low spread and yield to maturity (i.e., price at the tight end of the price talk). Otherwise, the
syndicate desk would need to increase the spread in order to attract enough investor interest.
6 Investment-grade debt typically had rating classifications of BBB, Baa, or better. High-yield or so-called junk bonds had ratings of BB, Ba, or
below.
7 “WorldCom Readies for a Record Investment Grade Deal,” MW11.
Page 5 UV0267
Exhibit 8 contains basis-point spreads for corporate debt over comparable-length Treasury securities for
various bond-rating categories. Although the spreads pertained to industrial issues, Brandt believed they
would offer some basis for estimating the yield to maturity on WorldCom’s new bonds. In addition, he had
assembled data on the recent prices of the bonds of telecommunications and media firms (Exhibit 9), which
might serve to indicate what investors expected by way of return.
Page 6 UV0267
Exhibit 1
Covenants Contained in WorldCom’s Proposed Public Bonds and New Bank Credit Facility
Public Bond Covenants Description Rationale
Mergers, Consolidations, The Company may consolidate with, or sell, lease or convey all or substantially all of its Restrict mergers, consolidations, or
and Transfer of Assets assets to, or merge with or into any other corporation, provided that in any such case, sale of all of an issuer’s assets that
either the Company shall be the continuing corporation, or the successor corporation would result in an impaired credit
shall be a corporation organized and existing under the laws of the United States and shall from the perspective of the creditor.
assume all covenants of this indenture.
Limitation on Liens The company shall not, and shall not permit a subsidiary to, create any Lien upon any of Protect relative seniority to income
its Property or assets, whether now owned or hereafter acquired, unless it has made or producing assets.
will make effective provision whereby the Securities will be secured by such Lien equally
and ratable with all other indebtedness of the Company.
Credit Facility Covenants Description Rationale
Limitations on Additional Limits the ability of the Company to incur additional indebtedness unless the Company Limit additional debt unless cash flow
Indebtedness exceeds a specified ratio of EBITDA to interest expense or maintains a certain level of is sufficient to service it. Maintain
total debt to total capitalization on a pro forma basis. credit quality/rating.
Limitations on Asset Sales The Company cannot make an Asset Sale unless the Board of Directors determines that Maintain “asset coverage” of debt;
and Disposition of Asset the Company receives Fair Market Value and unless at least a portion of the proceeds ensure assets remain dedicated to
Sales Proceeds from the Asset Sale are received in cash. Proceeds from the sale may have to be used to main lines of business; retain relative
repay Senior Debt or invest in the business within one year. risk profile of investment.
Additional Situational In WorldCom’s case, $7 billion of the credit facility will be reduced to $3 billion if the The large credit facility was extended
Covenants MCI/WorldCom merger is not complete by October 5th, 1998. Any amount outstanding with the understanding that MCI’s
on the credit facility above and beyond $3 billion would have to be prepaid by the additional cash flow would support it.
company at that point.
Limitations on Restricted An incurrence test that limits the ability of the Company to pay dividends, repurchase Prevent cash from leaving Company;
Payments and Investments stock or make investments in certain entities (e.g., joint ventures). The Company may be prevent Company from prioritizing
able to make “Restricted Payments” over time of up to 50% of Consolidated Net Income its cash flow for the benefit of junior
plus a defined “Restricted Payments Basket.” creditors/equity.
Source: All exhibits, unless otherwise specified, were created by author.

Page 7 UV0267
Exhibit 2
Stock-Market Response to Recent Telecommunications Deals from Announcement of Deal
through Closing Date or July 31, 1998, Whichever is Sooner
Percentage Change from Deal

Announcement to Close
Proposed Transaction Date Share S&P Industry

Announced Price 500 Index
Buyers
Bell Atlantic agrees to acquire NYNEX April 22, 1996 +36% +75% +56%
Deal closed August 14, 1997
SBC Corporation will buy Pacific Telesis April 1, 1996 +66% +74% +61%
Deal closed April 1, 1997
WorldCom agrees to buy MCI1 Nov. 10, 1997 +72% +22% +40%
AT&T will buy cable company, TCI1 June 24, 1998 −2% −1% +4%
Sellers
MCI agrees to be bought by WorldCom1 Nov. 10, 1997 +57% +22% +40%
Ameritech agrees to be bought by SBC1 May 11, 1998 +8% +2% +3%
1 Deal pending as of July 31, 1998.
Data source: Wall Street Journal, July 31, 1998, C1.
Page 8 UV0267
Exhibit 3
Selected Financial Information for WorldCom, Inc.
(in thousands of dollars, except ratios and per-share data)
1997 1996 1995 1994
Revenues $7,351,354 $4,485,130 $3,696,345 $2,245,663

Operation income (loss) 1,098,606 (1,844,094) 675,144 66,528
Interest expense 319,700 221,800 249,100 47,300
Income (loss) before extraordinary item 383,652 (2,188,944) 266,271 (124,013)
Extraordinary item - (24,434) - -
Net income (loss) 383,652 (2,213,378) 266,271 (124,013)
Preferred dividend requirement 26,433 860 33,191 27,766
EPS-basic before ex item 0.40 (5.50) 0.67 (0.48)
EPS-diluted before ex item 0.40 (5.50) 0.64 (0.48)
EPS-basic 0.40 (5.56) 0.67 (0.48)
EPS-diluted 0.40 (5.56) 0.64 (0.48)
Shares outstanding—basic 898,889 397,890 346,666 315,610
Shares outstanding—diluted 959,816 397,890 402,577 315,610
Total assets 22,389,553 19,963,1976 6,656,629 3,441,474
Long-term debt 6,527,207 4,803,581 3,391,598 794,001
Shareholders’ equity 13,509,865 12,959,976 2,187,681 1,827,410
Debt/total assets 39.7% 34.7% 67.0% 46.7%

Quick ratio 0.6 0.6 0.3 0.7
Current ratio 0.8 1.2 0.3 0.8
Asset turnover 0.3 0.3 0.7 0.7
Return on equity 2.8% −17.1% 12.2% −6.8%
Return on assets 1.7% −1.1% 4.0% −3.6%
Page 9 UV0267
Exhibit 4
WorldCom, Inc., in Comparison with Industry Peer Group
WorldCom, Inc. Telephone, Long

Distance
Price Change
Latest week (7/31/98) 8.4% 7.1%
Last 4 weeks 3.7% 3.1%
Last 52 weeks 47.9% 43.8%
Year to date (YTD) 60.1% 9.8%
Change versus S&P 500
Latest week (7/31/98) 96% 97%
Last 4 weeks 105% 105%
Last 52 weeks 129% 125%
YTD 145% 99%
Price ($)
Latest close (7/31/98) 48.44 50.28
P/E ratio 242.2 47.9
Price/book value 204% 339%
Price/revenue 563% 228%
Revenue
12 months ($ mil.) 8,864.6 102,861.6
Fiscal year ($ mil.) 7,351.4 99,962.5
Change last qtr. 47.5% 4.7%
Change YTD 43.9% 5.9%
Earnings
12 months ($ mil.) 202.5 5,246.5
EPS 12 months ($) 0.20 1.05
EPS fiscal year ($) 0.40 1.27
Ratios
Profit margin 2.3% 5.1%
Return on equity 2.8% 8.3%
Return on assets 1.7% 4.3%
Revenue/assets 34% 73%
Debt/equity 56% 48%
Interest coverage 3.5 9.3
Current ratio 0.8 1.0
Data source: Dow Jones & Company, Inc.
Page 10 UV0267
Exhibit 5
Moody’s Bond-Rating Definitions
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as “gilt edge.” Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa
group, they comprise what are generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are to be considered upper-
medium-grade obligations. Factors giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to impairment sometime in the future.
Baa Bonds that are rated Baa are considered medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Security for interest payments and principal appears adequate for the
present, but certain protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics, and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered
well assured. Often, the protection of interest and principal payments may be very moderate and
therefore not well safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any long period may
be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca Bonds that are rated Ca represent obligations that are speculative to a large degree. Such issues are
often in default or have other marked shortcomings.
C Bonds that are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Data source: Moody’s Industrial Manual (1995), p. vi.
Page 11 UV0267
Exhibit 6
Recent Movements in Interest Rates
Month
Ending Week Ending
Jun Jul Jul Jul Jul

Yields to maturity in % per annum 1998 10 17 24 31
Treasury Constant Maturities
3-month 5.12 5.08 5.15 5.08 5.07

6-month 5.32 5.23 5.23 5.25 5.21
1-year 5.41 5.34 5.36 5.36 5.37
2-year 5.52 5.43 5.46 5.47 5.48
3-year 5.52 5.44 5.48 5.47 5.48
5-year 5.56 5.41 5.47 5.47 5.51
7-year 5.56 5.47 5.54 5.52 5.56
10-year 5.50 5.41 5.49 5.46 5.50
20-year 5.80 5.71 5.82 5.79 5.83
30-year 5.70 5.61 5.71 5.68 5.73
Composite
Over 10 years (long-term) 5.78 5.69 5.80 5.77 5.81
Corporate Bonds
Moody’s seasoned
Aaa 6.53 6.48 6.58 6.56 6.60
Baa 7.13 7.09 7.17 7.15 7.20
A-utility 6.98 6.89
Data source: Board of Governors, Federal Reserve System.
Page 12 UV0267
Exhibit 7
Recent Yields to Maturity and Spreads of Moody’s Baa-Rated Corporate
Debt and U.S. Treasury over 10-Year Composite Rate
Recent History of Yields
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
Baa Corp. Rate US 10 Yr Comp. Rate
Spread: Baa Rate - US 10 Yr Composite Rate
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
Source: DataStream.
Page 13 UV0267
Exhibit 8
Spreads of Corporate Bonds over Comparable Maturity Treasuries
for Standard & Poor’s Bond-Rating Categories
Industrial Issues
(July 31, 1998)
Rating 1 Yr. 2 Yr. 3 Yr. 5 Yr. 7 Yr. 10 Yr. 30 Yr.

AAA 28 34 34 33 31 37 50
AA 33 37 36 35 34 44 59
A+ 37 41 39 42 49 56 84
A 40 43 44 60 60 70 93
A− 44 51 56 63 68 83 100
BBB+ 50 58 66 75 82 89 107
BBB 55 67 71 85 88 100 120
BBB− 64 76 81 92 99 114 128
BB+ 82 99 110 127 142 164 149
Compiled from averages of bonds rated by Standard & Poor’s.
A basis point is 0.01%, or 0.0001; 100 basis points (bp) equal 1.0%.
Data source: Bloomberg.
Page 14 UV0267
Exhibit 9
Close Prices on July 31, 1998, of Corporate Bonds
Issued by Telecommunications and Media Companies
Company Years to Type of Coupon S&P Moody Price per

Final Security Rating Rating $100 of
Maturity Face Value
News America Holdings 2 Notes 7.450% BBB− Baa3 102.45
New England Telephone 3 Notes 8.630% AA Aa2 107.25
ATT Corp. 3 Notes 5.125% AA Aa3 98.5
GTE Corp. 3 Notes 6.390% A Baa1 100.68
Century Telephone 5 Senior Notes 6.550% BBB+ Baa1 101.74
Enterp.
GTE Corp. 5 Debentures 9.100% A Baa1 111.85
News America Holdings 5 Notes 8.625% BBB− Baa3− 109.12
WorldCom 6 Senior Notes 7.550% BBB+ Baa2 105.75
MCI Corp. 6 Senior Notes 7.500% BBB+ Baa2 105.88
360 Communications 7 Senior Notes 6.550% Baa1 103.7
WorldCom 8 Senior Notes 7.750% BBB+ Baa2 107.70
Ameritech Corp. 30 Debentures 6.550% AA+ Aa3 99.25
Note: Standard & Poor’s uses + and − to indicate finer distinctions between the rating categories. Moody’s uses the numbers 1, 2, and 3.
An A1 bond is better than an A2 bond, and an A2 bond is better than an A3 bond.

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UV0267

Rev. Apr. 1, 2016

WorldCom, Inc.: Corporate Bond Issuance

The Bond Issue

The issue called for four tranches of debt to be offered:

 $1.5 billion in 3-year notes

 $1.0 billion in 5-year notes

 $2.0 billion in 7-year notes

 $1.5 billion in 30-year bonds

Table 1. Volume of U.S. security issues.

Public Bond Covenants Description Rationale

Credit Facility Covenants Description Rationale

Source: All exhibits, unless otherwise specified, were created by author.

Percentage Change from Deal

Proposed Transaction Date Share S&P Industry

1 Deal pending as of July 31, 1998.

Data source: Wall Street Journal, July 31, 1998, C1.

1997 1996 1995 1994

Revenues $7,351,354 $4,485,130 $3,696,345 $2,245,663

Debt/total assets 39.7% 34.7% 67.0% 46.7%

WorldCom, Inc. Telephone, Long

Data source: Dow Jones & Company, Inc.

Data source: Moody’s Industrial Manual (1995), p. vi.

Jun Jul Jul Jul Jul

Treasury Constant Maturities

3-month 5.12 5.08 5.15 5.08 5.07

Data source: Board of Governors, Federal Reserve System.

Recent History of Yields

Baa Corp. Rate US 10 Yr Comp. Rate

Spread: Baa Rate - US 10 Yr Composite Rate

Rating 1 Yr. 2 Yr. 3 Yr. 5 Yr. 7 Yr. 10 Yr. 30 Yr.

Compiled from averages of bonds rated by Standard & Poor’s.

Data source: Bloomberg.

Company Years to Type of Coupon S&P Moody Price per

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