WorldCom spreads blow out

The cost of protection on WorldCom’s five-year debt blew out today, following the resignation of chief executive Bernard Ebbers.

Credit derivatives traders said bids were being offered up to 2,000bp above Libor, but there were no takers. WorldCom’s 10- and 30-year bonds were trading as low as 40 cents in the dollar, said a telecoms credit derivatives trader at a large European bank.

Ebbers transformed WorldCom from a sleepy phone company into a leading telco during the 1990s, with its share price hitting $64 in 1999. But its value since plummeted to around $2 per share following mounting debt, accounting probes and investigations into $366 million in personal loans the company made to Ebbers.

“We do not expect WorldCom debt to run for five years,” said another credit derivatives trader at a European bank.

None of the traders RiskNews spoke with said they had sold any cash-up-front, one-year protection on WorldCom debt.

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