Credit Markets Update: Telecoms reeling on bad news

The battering of US telecoms credit default spreads continued this week, following a grim financial forecast by WorldCom last Friday that sparked a flurry of downgrades on the company’s debt. Five-year protection spreads on WorldCom widened to 1,700 basis points Tuesday.

WorldCom's latest problems stemmed from its Friday earnings revision. The company said earnings this year should fall between $7 billion and $7.5 billion, down from a previously revised estimate of $8.4–8.5 billion. Dealers said more earnings revisions are expected. Moody's cut its long-term credit ratings on WorldCom from A3 to Baa2 on Tuesday – just two notches above junk. It warned that further downgrades were possible. Fitch and Standard & Poor’s were quick to follow.

Greg Rosen, a credit

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