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S&P Lowers WorldCom Ratings


On Apr. 22, Standard & Poor's cut its long-term credit ratings on WorldCom Inc. to BBB, two notches above investment grade, and kept the ratings on CreditWatch with negative implications. In addition, the short-term ratings were lowered and removed from CreditWatch.

As of Dec. 31, 2001, WorldCom had total debt outstanding of about $30 billion.

The downgrade was based on the company's lowered 2002 revenue and EBITDA guidance for the WorldCom Group, which was attributable to the economy and enterprise customers' weaker demand for voice and data services, says analyst Rosemarie Kalinowski. Although the decline in revenue guidance was about 4.5% to 6.0%, the EBITDA decline was a significant 12% to 17% due to fixed operating costs, specifically line costs. The company reduced capital expenditures for the year by $1 billion to offset the approximately $1 billion decline in EBITDA guidance.

Nevertheless, Standard & Poor's continues to anticipate that the enterprise demand prospects in the telecommunications industry will be extremely difficult in 2002 and into the first half of 2003, thereby placing additional pressure on WorldCom's ability to increase cash flow and reduce debt to EBITDA below the 2.5 times area by the end of the year. Furthermore, pressure on the company's stock price affects its financial flexibility to issue new equity, which could be used to reduce debt.

Standard & Poor's will conduct a comprehensive review of the company, including prospects for its core data business, its ability to reduce debt, and the outcome of the SEC inquiry. The CreditWatch listing is anticipated to be resolved over the next few weeks. From Standard & Poor's RatingsDirect


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