WorldCom, Tyco grabbing leveraged players attention as paper trades at a discount

By Sara Rosenberg

New York, May 1 - Investment-grade companies have stolen the attention of leveraged financial professionals and investors, according to market sources. Names like WorldCom Inc., a global communications provider, and Tyco International Ltd., a diversified manufacturing and service company, are being watched as the companies' ongoing turmoil has lowered prices on their bank loan paper in secondary trading.

"It's been fairly quiet today because people have been focusing on Tyco and WorldCom," a fund manager said. "Their bank loan paper has dropped and because the prices are now at a discount, it makes the paper attractive to leveraged players."

Investors have been watching Tyco's performance ever since a recent announcement that it will not break up into four companies as previously planned but rather raise cash through an initial public offering of its CIT Group. Some of the proceeds from the IPO will be used to refinance $3.25 billion of debt that is due in February.

Tyco was trading in the low 90s Wednesday, according to a trader. He explained that the bank loan paper has experienced more trading since the company announced its original plan to separate into four pieces.

Meanwhile, the recent resignation of WorldCom's chief executive officer, president and director Bernard J. Ebbers has investors wondering whether his replacement, John Sidgmore, the company's previous vice-chairman, can improve the company's performance.

WorldCom's revolver, which expires in June 2002, was trading in the 97 to 98 range, according to the trader. The company does not expect to replace the $3.75 billion existing facility after it matures on June 30, 2002, according to a filing with the Securities and Exchange Commission. At Dec. 31, 2001, the commitment fee on the revolver was 11 basis points. Interest rates on the revolver can vary from 29 to 80 basis points over Libor and were at 33 basis points at Dec. 31, 2001, according to the SEC filing.

Trading activity on the company's loan has increased over the past couple of months due to the investment grade company's fall into "hard times", the trader added.

WorldCom's revenues for the quarter ended March 31, 2002 were $5.1 billion, down about 2% from the same period last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $1.8 billion for the first quarter and net income was $184 million. The company's debt was reduced by about $903 million and $876 million of free cash flow from operations was generated after capital expenditures of $1.25 billion, according to a company press release.

Coming up in the primary this week, Dollar General Corp., a Goodlettsville, Tenn. discount retailer of general merchandise, is scheduled to hold a bank meeting on Thursday regarding its $450 million revolving credit facility, which will be used to refinance existing debt. Sun Trust is the lead arranger for the deal.

The deal consists of a $350 million three-year revolver with a current facility fee of 37.5 basis points and a $150 million 364-day tranche with a current facility fee of 32.5 basis points and an all-in draw rate of Libor plus 237.5 basis points, according to a syndicate source. Interest rates are determined through a pricing grid based on the company's credit ratings.

Shoppers Drug Mart Corp. is scheduled to hold a bank meeting later this week for its new $435 million term loan B (Ba1), according to a syndicate source. CIBC is the lead bank on the deal. Closing on the loan is expected to occur around the end of May.

The North York, Ontario drugstore chain's new term loan will expire in approximately 6.75 years and has an interest rate of Libor plus 225 basis points, the syndicate source said. Proceeds will be used to refinance existing debt. Basically all assets will be used to secure the loan.

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