WorldCom active on settlement news; American Tower brightens on Bear Stearns upgrade

By Carlise Newman

Chicago, May 19 - WorldCom Inc. again graced the desks of distressed debt traders Monday, active for the third straight day on news that the beleaguered company is near a settlement with the Securities and Exchange Commission over its past accounting.

A federal judge said he needed more details on WorldCom's proposed $500 million deal to settle charges with securities regulators that it engaged in what is alleged to be one of the biggest accounting frauds in U.S. history and set another trial date for June 11.

WorldCom's bonds, which traded at 28¾ on Friday, rocketed to 34 bid/35 offered from a closing price of 29 bid/30 offered Friday, according to a distressed debt trader.

Under the framework for the proposed deal, WorldCom would pay a $500 million fine, with the money going to certain shareholders and bondholders who were victims of the alleged accounting fraud. WorldCom employees would not be eligible for that restitution.

The Securities and Exchange Commission had charged last June that the long-distance telephone and internet data company had manipulated its financial records at least as far back as 1999 to meet Wall Street expectations. WorldCom, which plans to change its name back to MCI, is expected to restate roughly $11 billion in earnings.

WorldCom has already won tentative approval by at least 90% of its creditors for its reorganization plan.

"WorldCom was nuts today. It's been active but nothing like today. And it's Monday," said a trader.

If the judge approves the deal, the penalty would represent the biggest fine ever assessed by the SEC against a public company that is not a broker-dealer. Xerox paid a $10 million fine last year to resolve its accounting problems.

Meanwhile American Tower's bank debt was seen at 93¼ bid/94½ offered Monday, up "about a quarter to a half point" from Friday, a distressed debt trader said. Its 9 3/8% notes due 2009 were quoted at 88 bid/90 offered, up two points from Friday's closing quote of 86 bid/88 offered.

Earlier Monday, Bear Stearns & Co. equity analysts upgraded the Framingham, Mass.-based wireless communication tower operator to outperform from peer perform. Analyst Jim Ballan cited valuation for his move, noting that the company is expected to be "meaningfully free cash flow positive" in 2003.

Ballan also raised his rating on the wireless transmission towers sector to market weight from market underweight.

"We haven't seen (American Tower) in a while; it doesn't cross our desk that often, so it was unusual to see anything on it today," said one distressed debt trader. "But, there wasn't that much else going on aside from WorldCom.

American Airlines' parent AMR Corp. made another brief appearance Monday on some desks. The benchmark 9% notes due 2012 were seen slipping to 57 bid/59 offered after reaching levels as high as 59 bid/61 offered Friday.

"There was no real reason for American to drop, no news, nothing," said a trader. "They'd been hovering in the high 50s, low 60s for a few days. If nothing breaks this week they'll probably stay where they are."

"I can't see them not filing (for bankruptcy protection) in the near future. It's inevitable," he added.

On Thursday, American said it may still have to file for bankruptcy protection from its creditors despite winning concessions from its unions and suppliers, the carrier's parent company warned in a government filing.

American parent AMR Corp. may have to file under Chapter 11 of the bankruptcy laws "because its financial condition will remain weak and its prospects uncertain," the company said in an SEC filing.

The world's largest carrier recently dodged bankruptcy by securing a series of cost-cutting measures aimed at netting $4 billion in annual savings.

Fort Worth-based American Airlines announced Thursday it would issue stock to suppliers and other creditors in exchange for agreements that will save the company $175 million a year. Last month, employees agreed to $1.8 billion in annual labor concessions.

But those cuts may not be enough to keep the company out of bankruptcy court. The weak U.S. economy, lingering effects of the war in Iraq and fear of more terrorist attacks either have or may hurt the ailing carrier, the filing said.

Also cited were the spread of severe acute respiratory syndrome, the company's "inability ... to satisfy the liquidity requirements or other covenants in certain of its credit arrangements" and its "inability ... to access the capital markets for additional financing."

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