WorldCom's bank debt lost its premium over the company's bonds last week after it announced that more accounting errors are likely to be uncovered. The market for the bank debt was quoted at a five-point premium to WorldCom's bonds because investors were hopeful that the bank group would strike a deal with the company to put their investment in a position senior to the bonds (LMW, 7/1). The bank debt is pari passu with the bonds, and the company's May 2003 notes were quoted in the 13-15 range, down from 16 1/2-17 the previous week. Traders said the market opened with an absurdly high bid of 20 for the company's $2.65 billion credit facility last Tuesday.
Now, dealers and market players believe that the company's bank lenders will no longer pursue or be able to receive extra security. "Why would the company agree to give the bank holders additional collateral if they knew they were just going to file for bankruptcy?" asked one analyst who follows the company.
Investors and other market players that follow the company are looking into potential buyers for the company's assets. Currently, the market is speculating that one of the regional operating companies could be a potential investor. Names tossed around include Verizon Communications, BellSouth and SBC Communications. Calls to a WorldCom spokesman were not returned by press time.