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Friday, 10 May, 2002, 21:18 GMT 22:18 UK
WorldCom dives on debt downgrade
WorldCom logo
The stricken US telecom giant WorldCom has suffered another blow after its debt rating was cut, sending its shares into free-fall.

US rating agencies slashed their assessment of the long-distance telephone company's debt to "junk" status after becoming concerned about its performance.

This is a real blow to WorldCom

Patrick Comack
Guzman & Co.
WorldCom executives immediately moved to reassure investors by saying that the company was in talks with its banks about renewing a $2.65bn (1.8bn) loan, due to expire in June.

The company also said that it would cut its investment program by $1bn in an attempt to shore up its shaky finances.

WorldCom has about $32bn in both bond and bank loan debt, amassed during an acquisition spree over two decades.

Shares in the company fell by as much as 15% on Thursday, before recovering some of their value.

The shares closed 43 cents down on Friday at $1.58, a decline of 21%.

Putting on a brave face

WorldCom maintained that the ratings cut would not affect its liquidity - in other words the cash it has at its disposal.

WorldCom founder and former CEO Bernie Ebbers
Founder Bernie Ebbers was forced to quit in April
"The downgrade has no impact on the liquidity of our bonds or on our bank credit facilities, period," said Scott Sullivan, chief financial officer.

But analysts said that the ratings downgrade was a problem for the company because it would push up borrowing costs.

The move could also force some investors to sell WorldCom bonds because investment restrictions may prevent them from holding junk-rated debt.

"This is a real blow to WorldCom," said Patrick Comack, an equity analyst at Guzman & Co. in Miami.

"This could be the first domino of a liquidity crisis."

Just junk

Moody's Investors Service cut the company's senior unsecured debt by three notches to its second highest junk grade of "Ba2".

It cited the company's deteriorating operating performance, enormous debt load and expectations of further weakness.

Last month the company's colourful chief executive, Bernie Ebbers, resigned following a collapse in the company's share price and investigations into his personal finances.

The shares have fallen 89% in the last year.

He was replaced by WorldCom's vice chairman John Sidgmore, formerly the head of the company's internet unit UUNet.

Fitch IBCA also cut its debt rating on Thursday and Standard & Poor's is threatening a downgrade.

WorldCom's shares closed down 6.5% at $2.01 on Thursday, after falling as low as $1.82.

See also:

30 Apr 02 | Business
WorldCom founder resigns
03 Apr 02 | Business
WorldCom slashes jobs
12 Mar 02 | Business
Watchdog scrutinises Worldcom
07 Feb 02 | Business
WorldCom denies rumours on its fall
02 Oct 01 | Business
WorldCom to cut 1,000 jobs
08 Feb 01 | Business
Worldcom profit drops 44%
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