Worldcom Bondholders Gear Up For Recovery Battle

  • 07 Jul 2002
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Holders of WorldCom's approximately $30 billion in bonds are beginning to form committees and hire legal representation in an attempt to recover as much as possible from the scandal-ridden telecommunications company. Distressed players say they expect a long and bitter fight between several classes of bondholders, not to mention bank lenders, who account for about $3 billion. Scott Klein, managing director at MW Post Advisory Group, says he is organizing a group of MCI bondholders, but did not elaborate, and did not return calls by press time last Tuesday during the holiday-shortened week. At least two sell-side traders say they are aware of a committee of intermediate bondholders that is forming. A group of investment-grade bondholders, each of whom has $500 in exposure, is also said to be seeking legal counsel.

The consensus among several distressed debt traders and analysts is that no single firm owned as much as $1 billion in WorldCom debt as of last Tuesday. They believe the majority of the bonds are held by investment-grade accounts, which will not sell their positions unless WorldCom files for bankruptcy protection--an event they widely expect.

Among distressed investors, Angelo Gordon and Oaktree Capital Management are among the larger bondholders, and they, along with Cerberus, are said to be among the only distressed investors with enough capital to acquire as much as $1 billion. Sheldon Stone, a principal at Oaktree, declined comment. Jeff Aronson, a senior executive at Angelo Gordon, and Kevin Genda, managing director at Cerberus, did not return calls.

Sam Rosen, a partner at Wechsler Harwood Halebian & Feffer, a New York law firm, is one of a number of attorneys who have filed bondholder class action lawsuits against WorldCom. Citing a Houston district court decision on Enron by justice Melinda Harmon some two months ago, he argues that a judge will not permit a large number of bondholders to band together as a class. Rosen, who to this point represents just one small retail investor, believes he will need to attract two or three large investors to have his case heard by a judge.

  • 07 Jul 2002

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Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

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1 Citi 120,318.45 348 12.81%
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3 Wells Fargo Securities 88,516.28 265 9.42%
4 JPMorgan 69,240.12 209 7.37%
5 Credit Suisse 51,378.45 156 5.47%