Bids for WorldCom bank debt and bonds plummeted into the teens this morning following news of the company's fraudulent booking of more than $3.6 billion in expenses. The paper had been at 81. Rumors circulated around the bank debt markets of paper trading in the 12-14 range, as well as one trade of the $2.65 billion termed-out paper at the 22 level. Several major dealers denied the existence of those trades.
Traders said the company's bank facilities would be quoted alongside the bonds in the 12-14 context. Some traders quoted WorldCom's $3.75 billion line, which matures at the end of June, in the 15-18 range. The $2.65 billion in termed-out paper was quoted as high as 14-16.
While market sources said a bankruptcy filing is probable, whether the company will draw down on its $3.75 billion line remains to be seen. One banker, whose desk has exposure to the name, noted that this paper would not trade at all until investors knew if the line would be drawn. The credit agreement may have a material adverse change clause that prevents the company from drawing on this line. Calls to Brad Burns, spokesman at WorldCom, were not returned by press time.
One dealer noted that the recovery on the paper would be higher than current levels, even after a bankruptcy filing. He explained that the levels had sunk so low because market players were expecting a large quantity of the paper to come out of institutional investors, such as insurance companies. As far as possible recovery levels go, it's anyone's guess. "Who knows? It's fraud," another dealer added.
Meanwhile, the entire secondary loan market is a few points softer because of WorldCom, one market player said, reflecting investor worries about the existence of hidden fraud in once-stellar companies. Overall trading was said to be thin as investors focus on WorldCom.