WorldCom in damage control mode

WorldCom Inc's CEO John Sidgmore yesterday went to analysts and investors for the second time since taking the job last week to assure them the latest financial news to hit the company is not as bad as it looks.

After a credit rating cut by a prominent investment service, Sidgmore went on a conference call to assure investors that the move would not affect the company's liquidity. He also discussed possible asset sales the company may be able to execute to reduce costs and raise cash to help service its debt mountain.

"We think we have a number of options, maybe more options than some people believe," Sidgmore said. He said WorldCom will conduct a "major financial reengineering of the business," which "will include asset sales, not necessarily to raise cash, but to improve the operating efficiency of the business."

"By far, the bulk will come out of our IP, data and local businesses," he said. "There are no sacred cows... we know what our core growth engines are." However, the firm seems unlikely to unload the MCI business and most core backbone assets.

"The chances of us getting rid of our European network are zero," Sidgmore said, adding that its core Asian network will also be kept. "But we don't need to be intra-country in every country in world." He also suggested WorldCom's wireless resale business, individual country units and some acquired technologies as possible sales.

Yesterday, Moody's Investor Services slashed its rating on WorldCom debt three notches to Ba2 from Baa2, pushing it into "junk" status. The rating affects $32bn of senior unsecured debt.

Initial fears that the downgrade would pull ratings triggers in WorldCom's accounts receivable securitization facility, a form of credit used to create liquidity, sparked a share sell-off. A junk rating can mean it's more expensive to borrow, and that some investors will steer clear of your bonds.

"The downgrades reflect the significant deterioration in the company's operating performance, expectations for continued weakness for the foreseeable future, the company's substantial debt load including sizable maturities over the next two years, and its need to restructure its maturing bank facility," Moody's said in a statement.

Sidgmore later held a conference call in which he dismissed the "un-quantified adjectives in [Moody's] press release". He said: "I want everyone to know we don't see any impact on our bonds or the availability of our credit facilities," and that the company is taking steps to make sure Moody's action isn't the beginning of a bottomless spiral of bad news.

He said the company is in talks with its banks, to "eliminate credit rating triggers" in its securitization facility, by replacing it with a new one. The lenders have issued a waiver on that facility until May 23, during which time they will negotiate with WorldCom on a new deal.

WorldCom CFO Scott Sullivan said the company is "in deep discussions with the banks, with tangible progress." He said: "The banks recognize the need to give our management team room over next few years. We expect to conclude the bank situation in the next 30 days, which will remove any question of liquidity, period."

The banks "have come back to offer us larger credit facilities, more room, get us out of the newspapers" Sidgmore added. He promised to keep investors current with how talks are progressing, following recent criticism that the company was being too quiet, giving investors the fear.

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