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    This is funny, they hate to state the obvious!

    Exemplifying the adage “closing the gate after the horse has bolted”, international ratings agency Moody’s last night downgraded Worldcom’s credit rating from ‘B1’ to ‘Ca’ and placed its outlook on negative. The rating reflects a view that any recovery of WorldCom's debt by its bankers will be “significantly compromised.”

    WorldCom Inc's disclosure yesterday that it improperly booked $3.8 billion (US$3.06 billion in 2001, US$797 million in 2002) of expenses as capital expenditures for the past five fiscal quarters sent financial markets reeling. US markets hit their lowest point since the September 11 attacks, with the Enron collapse of revelations of unscrupulous Wall Street dealings adding to the air of distrust.

    The company’s stock was belted down 88% to just US$0.10 before trading was halted pending an investigation.

    Moody's stated as much in outlining its reasons for the downgrade. It said it was concerned that

    the company may not be able to recover from the accounting fraud allegations;

    accounting irregularities and fraud accusations make the successful renegotiation of the bank facilities unlikely;

    the company is now unlikely to be able to draw down on a key source of liquidity, its $1.6 billion bank facility;

    even if debt is not accelerated, WorldCom's current cash position and cash generating capability would likely be inadequate to cover its debt maturities in early 2003; and

    material numbers of current business customers may begin to migrate to other carriers.
    The ratings agency indicated that like Enron, WorldCom had limited ability to renegotiate its bank debt and therefore needed to take action to generate cash to reduce upcoming debt maturities.

    The No 2 US long-distance telephone company later stated it would cut 17,000 jobs to conserve cash while it attempts to restructure its debts. However, other analysts said the odds are shrinking it will be able to persuade banks to grant it a US$5 billion loan.

    In Enron’s case, an investigation by the US Securities & Exchange Commission (SEC) into its finances made it difficult for the company to negotiate a rescue, with the bulk of the business eventually being sold for nominal amounts. Moody’s said that it too would keep a close watch on the investigation, suggesting further downgrades are likely.

    “In addition, Moody's will continue to closely monitor developments in the SEC investigation of WorldCom's accounting practices and the continued implications of its accounting irregularities announcement.”

    Debt analysts noted that each downgrade makes it that much more difficult, and more expensive, for the company to roll over its debts.
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