MCI chief: company "won't rule out" bond buyback, won't comment on "for sale" stories

By Paul Deckelman

New York, Sept. 21 - MCI Corp. "won't rule out" the idea of buying back some of its bond debt, the company's chief executive officer said Tuesday - although he also made no firm commitment to engage in such a buyback. And Michael D. Capellas sought to downplay speculation that the Ashburn, Va.-based telecommunications operator was actively looking to sell itself - speculation sparked by a story Monday in The New York Times.

Capellas - who took over as head of the long-distance carrier formerly known as WorldCom Inc. last year following the ouster of that company's discredited former management and helped bring it successfully out of bankruptcy- told a Banc of America Securities investors' conference in San Francisco, in answer to a query from the audience during the question-and-answer session about whether paying down the company's bond debt might be on the menu, that, "We certainly haven't ruled it out," and said that whether MCI will do so depends upon "the math."

At some point, he said, "when you look at that [debt buyback], it is a great return, at some price, for all shareholders. We certainly are very comfortable with our liquidity position and we'll continue to measure it opportunistically and at some point - if the math works and it's a return for shareholders, for all investors - I wouldn't rule it out."

At the same time, he stressed: "I didn't say today that I guarantee that we will make a bond repurchase - I said we certainly wouldn't rule it out and, if the math works, we'll certainly do it."

MCI, which emerged from Chapter 11 in mid-April, has some $5.5 billion of debt, including its 5.908% notes due 2007, its 6.688% notes due 2009 and 7.735% notes due 2014. Capellas noted during his presentation that including lease obligations of about $300 million, the company's total debt-and-lease burden was about $5.8 billion.

However, he noted that MCI continues to have "strong" cash flow, adding to the $2.2 billion of excess cash the company reported at the end of the second quarter. He projects that the company will end the year with $5.1 billion of cash, and said that one of MCI's financial goals is to continue to mange working capital "so that we approach the point where we have zero net debt."

MCI's bonds have firmed smartly over the past two sessions after the Times, and then other news services, reported on Monday that barely six months out of bankruptcy, the company has begun to search for a buyer, hoping to fetch more than $6 billion of sale proceeds.

The news reports attributed the information to unidentified sources familiar with the situation. The Times said that the second-largest U.S. long-distance telephone and data services company has hired J.P. Morgan Chase & Co. as its financial advisor, in addition to Lazard, which served as its financial adviser during its restructuring, the sources said. The banks declined to comment, and has also retained Greenhill & Co. and the Davis Polk & Wardwell law firm to help canvass for buyers.

MCI said last month that it would review the value of its assets.

Business plan is #1

In answer to questions on the article during Tuesday's San Francisco session, Capellas sought to downplay the speculation. He said that "we have been through every distraction known to man," and through out it, "our people are focused."

He declined comment on the anticipated $6 billion price tag being bruited around.

He said the company's "Number One priority" was to continue to drive forward with its business plan. "We are going to stay focused on what we are doing."

Capellas seemed to characterize the Times article and other news reports as essentially old news, especially the reporting on the hiring of J.P. Morgan, Greenhill and Davis Polk.

"We have a set of advisors," he said, "and if that is a surprise to anybody in this room and they don't know who these folks are, I would be shocked. Of course we have a set of advisors."

He said that the telecommunications industry "across the board" is redefining itself.

Addressing the question of whether MCI might seek to unload some assets, he said: "We have a business and we are focused on that. It includes international capabilities. It is a competitive differentiator. The international part is important to us," he said, in trying to soft-pedal the idea that MCI might look to shed international assets.

By the same token, he said, "we have just talked about the importance of hosting and services, so we have no intention of spinning off those data services, they're inherent to us.

Focusing on high-end accounts

"Do we have some adjustments we have to make to our architecture to make it more distributed, to focus on high-end accounts? You bet. And in the consumer business," he said, "it is particularly clear that we are going to target certain areas," and not compete in certain other areas.

"That is not news. That has been our strategy, and everything we do, we're executing it."

He said that "the consumer business is shrinking," as MCI faces intense competition not only from traditional rivals like AT&T and Sprint Corp., but such new competitors as the formerly restricted regional Bell operating companies and other resellers who buy big blocks of minutes from other carriers and sell them at a discount to consumers.

"It will be targeted, those areas that make sense, that is clear - and data centers and services is inherent." With the company also retaining its burgeoning enterprise business and its international operations, "that is an absolutely crystal-clear strategy and that is what we are executing on."

Participants, he said, could "draw every conclusion you want from that - but it is absolutely consistent with what we've said today."

The CEO added that "any other comment [about the for-sale speculation] that I could make, would be inappropriate."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.