WorldCom's bank line drawdown brings no comfort

By Ronda Fears

Nasvhille, Tenn., May 16 - WorldCom Inc.'s drawdown of its remaining $2.65 billion of its bank lines was not comforting and in fact has brought on more nervousness about the company's situation.

WorldCom said it is still negotiating a new, secured, $5 billion facility maturing in 2005 and 2006 that it would use to pay off the bank lines. At the same time, WorldCom is negotiating a new, smaller accounts receivable securitization facility without ratings triggers.

"Although the draw down does bring a degree of surety regarding more immediate liquidity needs, the $2.65 billion facility will mature during a period of time in which the company faces other significant maturities," said S&P analyst Richard Siderman.

"Unless and until a longer-term credit facility can be negotiated, it is a rational move for WorldCom to preserve access to the $2.65 billion facility. The potential positive credit impact of (a longer-term secured credit facility) will depend on the terms of that agreement. In particular, if financial covenants of such a facility effectively and materially limit draw downs, then the additional liquidity gained from such a new facility would be limited."

S&P said if WorldCom sees material customer defections, another downgrade is likely. S&P cut its ratings for WorldCom last week and is keeping the ratings on negative watch.

Although WorldCom said it did not need the cash, but was drawing down the bank lines to preserve its term-out options, it raised questions for some onlookers.

"Despite its assurances, we wonder how confident management can be if it feels the need to draw down its facility in advance of an agreement," said Wachovia Securities convertible analysts Jeanine Oburchay and Brian Park in a note Thursday.

WorldCom shares closed up 1.9c to $1.31.

"There's definitely something fishy about this 'we're just preserving our term-out option' argument," said Gimme Credit director of research Carol Levenson.

"If things are going so swimmingly with the banks, why not simply get an extension of the maturity while negotiations continue. Gasping room might be obtained, but customer retention and capital market access will be the next crucial issues."

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