Bankruptcy hasn't done much for the liquidity of WorldCom's bank debt, as no trades came in last week after the company and its domestic subsidiaries filed for bankruptcy last Sunday, according to market sources. One trader suggested that investors would begin to trade the bank debt once they had fully evaluated its expected recovery. The bank debt is currently being quoted at a three- to five-point premium to its bonds, which traded in the 12 1/2 to 14 context last week.
Market players explained that even though the bank debt is technically pari passu with the bonds, there is a possibility that the bank debt holders may have a stronger claim because the $2.65 billion revolver was termed out close to when the company announced its fraudulent accounting and filed for bankruptcy. Banks contend that the company took advantage of the bank group and acted on the line after it knew about its accounting problems but before the problems were disclosed.
WorldCom's bank debt was previously quoted at a premium to its bonds because investors hoped that bank holders would provide the company with addition financing in exchange for extra security. The company recently received a $2 billion debtor-in-possession facility via Citibank, J.P. Morgan and GE Capital; however, it no longer appears that the existing bank debt will be rolled into that credit. Calls to the company were not returned by press time.