Five-year credit-default swap spreads on MCI have narrowed by over 100 basis points over the past few weeks as Qwest Communications International and Verizon Communications bid to buyout the Ashburn, Va.-based telecom company. One trader said MCI's spread started tightening in late January when SBC Communications acquired AT&T for USD16 billion and investors began speculating MCI might be next.
Qwest offered MCI a takeover bid of USD6.3 billion on Feb 3 and this drew in MCI's spread to about 140bps from about 230bps at the end of January. After this week's news of an informal Verizon offer, MCI's spread has came in to 70-80bps. The trader predicts the Verizon-MCI deal will go through, driving MCI's spread even tighter.
Standard & Poor's rates MCI B plus and Moody's Investors Service gives it a B2 rating. James Veneau, a Moody's analyst in New York, said MCI's credit rating would be pulled up by a Verizon buyout, adding Moody's rates Verizon A2. If the acquisition took place, MCI's debt would go under review, during which time the agency would access a variety of factors such as the operating synergies the companies would be able to generate. Also during this time, the acquisition must receive clearance from the Federal Communications Commission, U.S. Department of Justice, several state public utility commissions, and the European Union and its equivalent regulatory bodies. Getting regulatory approval will take some time, he said, adding it would be a while before an acquired MCI receives an upgrade.
