WorldCom Inc., struggling to raise cash to pay its debt, won a $1.5 billion loan after it agreed to make more frequent repayments, people familiar with the matter said.
Banks led by J.P. Morgan Chase & Co. and Bank of America Corp. will provide the loan, and WorldCom will announce details of the terms tomorrow, said Brad Burns, a spokesman for the second- biggest long-distance telephone company.
``It's good they got this done,'' said Robert Rock, a fixed- income analyst at John Hancock Advisers Inc., which owns 31,359 WorldCom shares. The stock rose 23 cents to $1.65.
The accord, which increases the likelihood WorldCom can secure another $5 billion in new borrowing, eliminates a provision in an earlier financing that required the Clinton, Mississippi- based company to maintain investment-grade ratings. In exchange, WorldCom agreed to pay back the cash it gets from customer bills every 10 days, instead of once a month, the people said.
WorldCom, whose debt was downgraded to junk last week, is prepared to pledge assets and pay twice the interest rates it pays now for the $5 billion in new loans, the people said.
Banks can demand tighter terms and higher rates because WorldCom needs money to pay back as much as $3.4 billion in debt that's likely to come due in the next 18 months, and more than $2 billion in 2004.
WorldCom said yesterday it would buy the MCI Group stock that tracks its consumer unit to save $284 million in annual dividend costs. Last week it said it would draw down a $2.65 billion bank credit line to buy more time to negotiate with its lenders.
The moves to raise cash came after Standard & Poor's and Moody's Investors Service cut WorldCom's $30 billion of debt to junk and its bonds fell to less than half their face value. The company was dropped last week from the Standard & Poor's 500 Index after a five-month, 90 percent decline in its stock price.
The new asset-backed receivables program, which replaces an existing $2 billion agreement, gives WorldCom less time to earn interest on any cash it invests.
In addition to its receivables program, WorldCom said last week it planned to take out a new $2.65 billion loan secured with assets and add $750 million to an existing $1.6 billion loan that's due in 2006. The company had $8 billion of credit lines and will allow a $3.75 billion line to expire at the end of June.
J.P. Morgan, Bank of America and Citigroup Inc., which are arranging the new loans, plan to raise the $750 million in new funds from a handful of existing banks and some institutional investors, such as Eaton Vance Corp., the people said.
The new loan is being offered to investors with an interest rate of as much as 3.50 percentage points more than the London interbank offered rate, or Libor, the people said. WorldCom is paying 1 percentage point more than Libor on its existing $2.65 billion credit line, according to filings with the Securities & Exchange Commission.
The higher spread and security may not be enough to attract investors, according to Glenn Reynolds, chief executive of CreditSights, an independent research firm. The company's 6.5 percent notes maturing in 2004 are trading at 22.40 percentage points more than Libor, well above the pricing for the new loan.
The yield on the bonds makes the proposed pricing on the loan ``highly unattractive to the banks, even on a secured basis,'' he said.