Reference no: EM133075349

Part A

Some background introductions of our target firm, WorldCom. and industry, as well as some macro-economic factors before the bond issue. Explain generally about the needs of capital for WorldCom to issue corporate bonds.

Part B

Based on the case material provided and some extra research you have done, answer the following questions.

1. Elaborate the rationale that WorldCom issues these debts by discussing other alternative financing sources (e.g., share issue, bank debt etc.). And what is the major uncertainty when WorldCom issue securities? Your discussion may include the Pros and Cons for different capital raising alternatives based on general finance knowledge and WorldCom's specific financial positions.
2. Discuss the rationale of the timing for WorldCom's bonds issuance. Whether you believe it's a good timing or a bad timing for such bonds issues? Your points of 'issuing Now or Later' should be formulated based on what factors/theories (either from WorldCom's financial status and market environment) favour issuing now or what factors/theories do not.
3. Discuss the rationale of the size for WorldCom's bonds issuance. Specifically, your discussion should cover, what are the risks/benefits of issuing up to $6 billion corporate bonds in one go, would a series of smaller issues be a better strategy? How does the market react to the large size of the offering?
4. What is the role of investment banker in bond issue under the case of WorldCom? Who are they? And what kind of services are provided to clients? Are there any differences compared with IPO?
5. Comment on the following statement: 'Credit rating is very important in determining the yield, but we cannot purely rely on it'. You can bring in examples to explain a). why credit rating is important, and widely used in valuation of bonds; b). why we cannot purely rely on it, for example, firms with same credit rating, but yields can be very different, what are the factors behind?
6. Based on what you conclude from Question 5, estimate the percentage yield (known as the pricing of bond...) that WorldCom will incur on its 3-, 5-, 7-, and 30-year notes, respectively. You need to show clearly about your assumptions, methods, formulation, and calculation in a manner that can be explained to those how are not familiar with credit market and bond pricing.

Part C

Google about 'WorldCom Scandal' and brief what happened several years later. In the end, how did they settle the lawsuit and what was agreed to shareholders and bondholders, respectively. Comment this with the knowledge that we learn from this Case study/AFIN8012 class.