WorldCom is working with its bank group to amend the financing arrangements on a $2.65 billion, 364-day revolver as the market for the credit sunk to the 60-70s level from the 80-85 range two weeks ago. The credit, led by J.P. Morgan and Bank of America, is part of a deal that includes a $3.75 billion, mutli-year revolver and both facilities mature in June. The credit agreement allows the company to term out the 364-day facility and investors are worried that after the $3.75 billion line matures next month, the company will draw down and term-out the $2.65 billion facility. Dealers said that the company does not need cash at this time, but rather the liquidity associated with having the credit available. Both revolvers are currently unfunded.
No trades of the 364-day line could be confirmed, but the company's $3.75 billion revolver did trade lower as investors grew anxious that WorldCom would draw down this line as well and then file for bankruptcy. Traders said a Japanese institution failed to auction $10 million of the name in the 96 1/2 range early last Wednesday. A $20 million piece changed hands in the 93 context later that day and a $10 million piece was seen trading in the 92-93 context last Wednesday night. The company's management has stated that there are no plans to rollover this credit. Brad Burns, a WorldCom spokesman, confirmed that the company is in talks with its banks to amend the $2.65 billion revolver. "There are no liquidity issues," he said, adding that the notion that the company will file for bankruptcy baseless.
Many market players suggest that WorldCom, seeking to maintain its banking relationships, almost has to amend or refinance the $2.65 billion line rather than term it out. "They need to maintain a relationship with the banks," said Patricia Lee, CreditSights' analyst. "Drawing down and terming out would be declaring war on the banks." She noted that the company must maintain a healthy relationship with its banks so it can amend a $2 billion accounts receivable facility that could terminate if the company's credit rating sinks below the investment grade level.
Still others worry that WorldCom will follow the path of companies such as Computer Associates, Tyco International, Qwest Communications, and Enron, which have draw down on available lines when faced with tough credit decisions.