Worldcom Bond Issuance

954 WordsOct 2, 20124 Pages
WORLDCOM, INC: CORPORATE BOND ISSUANCE 1. IS IT A GOOD TIME FOR WORLDCOM, INC. TO ISSUE? CONSIDER FACTORS IN FAVOR AND FACTORS THAT ARE NOT IN FAVOR. Personally I believe that the time is not in favor of WorldCom in undertaking one of the largest bond issues at the time. Even though there are many advantages with proceeding with the issue, I believe that the degree and the uncertainty raised by some of the disadvantages outweigh the advantages of going ahead with the $6Billion bond. In the table below are reflected both the advantages and disadvantages of proceeding with the bond. Advantages Disadvantage 1. MCI Merger, which would be financed by the issue, boosted investor interest and awareness in the company.…show more content…
However, this is not the case with WorldCom, as the company apparently has good reputation and can get the required financing through loans. However, with bonds there is less flexibility to resolve any future issues and there is always the pricing risk, but one pro of a bond is that there is no periodical principal payment. The major challenge of any bond issue is the uncertainty, i.e. the fact that companies cannot predict how markets will react to the issue. Moreover, the volatility of the fixed income markets is a factor to be accounted for as well as how the credit risk rating of the Company will be perceived and accepted by the investors. Another major uncertainty is the bid-to-ask ratio. A potential major uncertainty, which is not present in the case of WorldCom but presently has become an uncertainty in some markets, is the country risk premium. If the operations are in a country that has a non-stable political or sovereign state the volatility of the country risk premium could be a major uncertainty that an issuer could face. 4. ESTIMATE THE EXPECTED BORROWING COST (I.E. COUPON) THAT WORLDCOM WILL HAVE TO PAY FOR 3, 5, 7 AND 30-YEAR NOTES? WHY ARE BONDS PRICED IN THIS MANNER? Provided the data on the corporate bonds in Exhibit 9, the estimated coupon of
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