WorldCom sold $11.9 billion in bonds Wednesday, the largest ever by a U.S. company, as the phone service carrier seeks to improve its financial position and keep spending on its network.
The sale comes as WorldCom and other competitors like Qwest Communications International, Sprint and AT&T have taken a beating in the stock markets as they try to become less dependent on their voice businesses and take advantage of the demand for Internet services.
But Bill Hornbarger, a fixed-income strategist at A.G. Edwards, said, "With the Fed easing, the equity markets doing better, and all the liquidity in the system, people are feeling better about taking risks."
WorldCom also priced the deal at attractive yield rates, which helped ease investor qualms about buying more debt in the company. The company reported $17.7 billion in long-term debt at the end of 2000 and $13.1 billion at the end of the previous year.
The company sold a $4.6 billion slice of the 30-year notes at a yield of 8.425 percent compared with the Wednesday's closing yield of 5.65 percent on 30-year U.S. Treasury bonds. The difference means that WorldCom will pay higher interest rates on its debt than it would with relatively risk-free government bonds to compensate bondholders for taking extra exposure.
The spread between WorldCom's 10-year bonds and Wednesday's close of U.S. 10-year bonds was also sizable at 7.695 percent and 5.15 percent, respectively.
WorldCom will use the proceeds to pay off short-term debt in the form of commercial paper of which $1.5 billion is due Aug. 15 and another $1.5 billion on Nov. 26.
The Clinton, Miss.-based company also will use the newly minted cash to fund its spending plans. WorldCom reported $9.4 billion in capital expenditures during 2000, compared with $7 billion in 1999 and $4.5 billion in 1998.