Case, WorldCom

Case, WorldCom - increasing (hurts us) Spreads are amount...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Case: WorldCom Inc. Issue: o Raise $4 - $6 billion in debt to acquire MCI for $37 billion o What will cost of this debt capital/ new bonds be? Alternatives: o 4 different bond types (3, 5, 7, 30-year) in a jumbo issue o Smaller issues over time o Bank loans/ debt Criteria: o Lowest yield possible (depends on bond ratings) Market factors: o Over-supply of debt on the market means prices get driven down o Asian crisis: Exhibit 7 shows people are leaving risky investments and flooding safer options like bond market Bond prices go up Yields go down Effect on corporate bonds: Spread shows that even though T-bond yields decline (helps us), spreads are
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: increasing (hurts us) Spreads are amount that corporate yields are higher than treasury yields Investment bankers notorious for under pricing bonds, so as to not hurt their reputations To worry about in pricing: o Maturity length o Industry comparables (other WorldCom bonds) o Bond ratings The riskier the bond, the higher the spread (bad) Investors are bullish: o Spread will be lower (bull = prices rise) Investors are bearish: o Spread will be higher (bear = prices fall) In this case investors were bullish: o WorldCom bonds were priced way too high...
View Full Document

Page1 / 2

Case, WorldCom - increasing (hurts us) Spreads are amount...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online