Correction: Fitch Affm WorldCom; Intermedia on Watch Pos.Business Editors CHICAGO--(BUSINESS WIRE)--Sept. 6, 2000 In a press release dated September 5, 2000, the rating for WorldCom, Inc.'s senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. was reported as `A`. The correct rating is `A-` as referenced in the first paragraph. The corrected text of the entire release follows. Fitch has affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. the `A-' senior unsecured and `F1' commercial paper ratings of WorldCom, Inc. (WorldCom). Likewise, Fitch has placed the `BB-` senior secured, `B+' senior unsecured, `B' senior subordinated and `B-` preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. ratings of Intermedia Intermedia - A hypertext system developed by a research group at IRIS (Brown University). Communication Inc. (Intermedia) on Rating Watch Positive. These rating actions reflect the companies' intention to merge operations in a transaction valued at $6 billion, of which $3 billion represents debt and preferred stock. At an exchange ratio higher than 1.0685, WorldCom can opt to pay approximately $300 million in cash rather than additional WorldCom stock. The transaction is expected to close in early 2001. The Rating Outlook for WorldCom is Stable. The impact of this acquisition on WorldCom from a credit rating perspective is moderate. This transaction will add approximately $2.5 billion of debt to WorldCom's balance sheet. WorldCom has indicated that it will likely rationalize ra·tion·al·ize v. 1. To make rational. 2. To devise self-satisfying but false or inconsistent reasons for one's behavior, especially as an unconscious defense mechanism through which irrational acts or feelings are made to appear 60-80% of Intermedia's assets. The company has also indicated that material revenue and cost synergies Cost Synergy In the context of mergers, cost synergy is the savings in operating costs expected after two companies, who compliment each other's strengths, join. Notes: The savings in operating costs usually come in the form of laying off employees. can be achieved. Fitch expects that synergy cost savings should be in the range of $750-1,000 million based on the expected percentage of asset sales and that network expenses and depreciation and amortization amounted to approximately $1 billion for the trailing 12 months ending 2Q'00. It is also expected that interest savings should be in the range of $150 million annually reflecting WorldCom's superior borrowing costs. Revenue synergies should come from the combination of WorldCom's Internet and data capabilities and Intermedia's Digex operations, which is an industry leader in complex hosting and centrally managed services An umbrella term for third-party monitoring and maintaining of computers, networks and software. The actual equipment may be inhouse or at the third-party's facilities, but the "managed" implies an ongoing effort; for example, making sure the equipment is running at a certain quality . WorldCom's desire to merge with Intermedia is due to the Digex position the company would acquire. Intermedia has a 55% economic and 94% voting interest Voting interest in business and accounting is a percentage of voting stock owned. This notion is different from economic interest that refers to a percentage of all the equity issued, including preferred stock, warrants, and so on. in Digex. While it is possible that certain other Intermedia assets will provide synergies with existing WorldCom assets, the key interest of WorldCom is in Digex. Digex will allow WorldCom to continue to focus in the high-growing Internet services business. WorldCom plans to couple its hosting assets with the existing Digex operations. This should allow Digex to expand internationally. The company has also indicated that Digex will benefit from WorldCom's large subscriber base, superior funding capabilities and global sales force. Therefore, the acquisition of the Digex interest in this merger is key to the long-term strategic positioning of WorldCom in the Internet services industry. A final credit issue that is not linked to this transaction for WorldCom is associated with its monetization efforts of its consumer and wholesale voice business. In July 2000, WorldCom indicated that it would restructure its business to focus on its highest-growth segments. In this restructuring the company would determine the best way to monetize its low growth consumer and wholesale voice businesses. It has indicated that a tracking stock, spin- off or asset sale are possibilities and all will be evaluated. While this business is low growth, it does produce a material amount of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become . The loss of this EBITDA without some offsetting debt reduction could pressure WorldCom's credit rating. Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of and London with a major office in Chicago, Fitch rates entities in 75 offices worldwide. The agency, which is a combination of Fitch IBCA IBCA International Braille Chess Association IBCA Institute of Burial and Cremation Administration IBCA Integrated Business Communications Alliance IBCA International Barbeque Cookers Association IBCA Department of Interior Board of Contract Appeals and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Corporates, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion