WorldCom Shares, Bonds Fall on Debt Speculation

WorldCom Group Inc. shares and bonds fell sharply Tuesday on speculation that the No.2 U.S. long-distance carrier will have to write off assets when it reports quarterly earnings next week.

Rumors also were rife that major credit rating agencies are poised to downgrade the company’s debt. But Standard & Poor’s denied it is planning such a move.

WorldCom’s common stock tumbled $1.60, or 13%, to $10.40 on Nasdaq, the lowest closing price since 1995.

In part, WorldCom suffered as telecom shares in general were lower in the wake of fiber-optic-network operator Global Crossing Ltd.’s Chapter 11 bankruptcy filing Monday.

But some analysts raised questions about potential write-offs of WorldCom assets.

Sean Egan, managing director of Egan-Jones Ratings Co., predicted that WorldCom faces “a fair amount of house cleaning” given questions about asset values at other telecom firms.

He estimated that WorldCom will have to write off part of last year’s $3.7-billion acquisition of Intermedia Communications. The company’s earnings also will suffer because long-distance rates have continued to fall, Egan said.

“Based on poor fourth-quarter results, they’re going to have to lower their ’02 guidance,” said Adrian Davies, a portfolio manager at Federated Investors Management, which owns about $14 million of WorldCom preferred shares.

WorldCom spokesman Brad Burns declined to comment on possible write-offs.

A month ago, WorldCom said in private meetings with investors that fourth-quarter and first-quarter results would be weak, without providing more detail, said Davies, who attended some of those meetings.

Also weighing on WorldCom on Tuesday was rival Qwest Communications International’s report of a fourth-quarter loss that was wider than in the year-earlier period. Qwest shares fell 59 cents to $11.76 on the New York Stock Exchange, nearing the multi-year low of $11.51 set on Nov. 7.

Worries about WorldCom’s health pushed the value of its bonds lower and their yields higher. The company’s bonds maturing in 2031 fell about $26.50 per $1,000 face value, pushing the yield to 8.14% from 7.91% on Monday.

S&P; said the rumor it may downgrade WorldCom debt to junk status wasn’t true. “The rumors are unsubstantiated,” said Rosemarie Kalinowski, an S&P; director in New York.

The company’s debt currently is rated BBB-plus by S&P; and A3 by Moody’s Investors Service, both with a stable outlook.

Richard Klugman, an analyst with Jefferies & Co., said there were concerns that WorldCom Chief Executive Bernie Ebbers might face a “margin call” if the company’s stock falls below $10, which it did briefly Tuesday.

A margin call requires a brokerage customer who has purchased stock on credit to deposit money or securities to boost the collateral in the account. Asked whether Ebbers might face a margin call, a WorldCom spokesman said: “That’s Bernie’s personal finances. We can’t speak to that.”

Shares of WorldCom MCI, a tracking stock for WorldCom Group’s consumer, small-business and Internet access services unit, fell 89 cents, or 6.1%, to $13.81 on Nasdaq. But the WorldCom MCI shares have the benefit of being supported by a large dividend: The company’s annualized dividend rate is $2.40 a share, giving the stock a current yield of 17.4%.

There is no dividend paid on WorldCom Group stock.