Worldcom, Inc Corporate Bond Issuance
WORLDCOM, INC: CORPORATE BOND ISSUANCE
Introduction
This case raises many interesting questions concerning the record setting issuance of corporate debt by WorldCom, Inc. (“WorldCom”). Both the surprisingly voluminous structure of the proposed issuance and the foreboding macro-economic climate in which it was slated spark concerns over the risk and cost of the move. One of the first questions that must be addressed is whether WorldCom’s timing was appropriate. Next, the company’s choice of structure for the bond issuance must be analyzed. Finally, the cost of issuing each tranche of debt must be estimated in order to determine how much WorldCom is actually giving up to achieve the $6 billion in funds.
Timing of the Bond Issuance - Advantages
In determining whether the first week of August 1998 was the most opportune time for WorldCom to market such a large bond issuance, the advantages of this time must be weighed against the disadvantages. First, we will cover the advantages. The announcement of WorldCom’s monumental merger with MCI had recently boosted awareness and interest in the firm in a positive way (as evidenced by the surge in stock-price). This was especially important since the merger was set to be financed by the issue, thus incentivizing investors to partake. WorldCom would not have had sufficient funds to complete the merger without the issue, and a WorldCom and MCI merger would be extremely advantageous for all parties involves. Post merger, WorldCom’s credit rating was expected elevate, which would enable the company to borrow at a lower rate. Finally, the macro-economic crisis in Asia had recently shifted investors’ interest away from equities to corporate bonds and treasuries, thus drawing even more interest in the WorldCom opportunity.
Timing of the Bond Issue - Disadvantages
Although the advantages are numerous, the disadvantages of WorldCom’s timing are seemingly more persuasive. WorldCom had chosen to market the issuance
Introduction
This case raises many interesting questions concerning the record setting issuance of corporate debt by WorldCom, Inc. (“WorldCom”). Both the surprisingly voluminous structure of the proposed issuance and the foreboding macro-economic climate in which it was slated spark concerns over the risk and cost of the move. One of the first questions that must be addressed is whether WorldCom’s timing was appropriate. Next, the company’s choice of structure for the bond issuance must be analyzed. Finally, the cost of issuing each tranche of debt must be estimated in order to determine how much WorldCom is actually giving up to achieve the $6 billion in funds.
Timing of the Bond Issuance - Advantages
In determining whether the first week of August 1998 was the most opportune time for WorldCom to market such a large bond issuance, the advantages of this time must be weighed against the disadvantages. First, we will cover the advantages. The announcement of WorldCom’s monumental merger with MCI had recently boosted awareness and interest in the firm in a positive way (as evidenced by the surge in stock-price). This was especially important since the merger was set to be financed by the issue, thus incentivizing investors to partake. WorldCom would not have had sufficient funds to complete the merger without the issue, and a WorldCom and MCI merger would be extremely advantageous for all parties involves. Post merger, WorldCom’s credit rating was expected elevate, which would enable the company to borrow at a lower rate. Finally, the macro-economic crisis in Asia had recently shifted investors’ interest away from equities to corporate bonds and treasuries, thus drawing even more interest in the WorldCom opportunity.
Timing of the Bond Issue - Disadvantages
Although the advantages are numerous, the disadvantages of WorldCom’s timing are seemingly more persuasive. WorldCom had chosen to market the issuance