Moody’s Slashes WorldCom Debt to Junk

Moody’s Investors Service slashed $32 billion in WorldCom Inc. debt to “junk” status Thursday, citing the long-distance telephone company’s deteriorating operating performance, enormous debt load and expectations of further weakness.

In the face of the downgrade, WorldCom executives sought to reassure investors by saying the company was in talks with banks on new financing and could cut an additional $1 billion in planned investment and sell assets to shore up its balance sheet.

Moody’s cut Clinton, Miss.-based WorldCom’s senior unsecured debt rating three notches to Ba2, its second-highest junk grade, from Baa2, and its short-term debt rating two notches to Not-Prime from Prime-2.

It warned it may cut the long-term rating again.

WorldCom shares fell as much as 15% on Thursday, but recouped some of their decline after WorldCom said it received a waiver through May 23 from lenders on its $2-billion accounts receivable securitization program, and that the downgrade “has no impact” on the company’s liquidity.

The company said it is in talks to replace the financing program and replace a $2.65-billion bank credit line, which expires June 7. Executives said on a conference call that WorldCom will likely cut its capital expenditure budget by an additional $1 billion.

“The downgrade has no impact on the liquidity of our bonds or on our bank credit facilities, period,” said Chief Financial Officer Scott Sullivan on the call to analysts and investors.

“We expect to conclude the bank situation in the next 30 days and this will remove any questions of liquidity,” he said.

WorldCom shares closed Thursday on Nasdaq at $2.01, down 14 cents, or 6.5%, after falling as low as $1.82, on volume topping 127 million shares, more than 21/2 times the average over the last month.

They have fallen 89% in the last year.