Updated 2:19 p.m. EDT

Rumors of a cash crunch at



were quickly shot down by the company and by a number of Wall Street analysts Monday after the firm lowered its financial targets for the second time this year. But that didn't stop investors from dumping the beleaguered telecom concern en masse.

Shares of the long-distance company plunged 33% Monday, wiping out over $5 billion in market value after the firm slashed its revenue and EBITDA estimates by more than $1 billion. Still, the No. 2 carrier insisted that its balance sheet is sound.

"We have more than $2 billion in cash and an additional $8 billion of liquidity in the form of untapped bank lines," said Brad Burns, a spokesman for WorldCom. "We're in pretty good shape on that front."

WorldCom also expects to have $1 billion in free cash flow in 2002. The company has total debt of about $30 billion.


Bear Stearns analyst Robert Fagin said liquidity is "not an immediate concern for us," because he believes the company can meet its debt obligations this year and is in no danger of violating its financial covenants.

WorldCom has total debt maturities of $172 million in 2002, he said, adding that the firm's consolidated debt-to-book capital stands at 0.44, well below the required level of 0.68.

"WorldCom's debt would have to approach $80 billion to encroach on that covenant," he said.

Still, some analysts note that liquidity concerns could intensify over the next couple of years, as $1.7 billion and $2.6 billion of debt come due in 2003 and 2004, respectively.

Meanwhile, rating agency Standard & Poor's cut its long- and short-term credit rating on WorldCom's debt and said it may cut the rating again. S&P now rates Worldcom triple-B, just two notches above junk status.

Paying Paul

Worldcom reorganized its business into two parts last year, with one unit tracking the MCI telephone operations and the other unit tracking the performance of the data business. But analysts are now calling for a reconsolidation, which would allow Worldcom to use cash from the telephone unit to pay off debt from the data operations.

"At this point, we think WorldCom must commit to reconsolidating the MCIT trackers into a consolidated entity," said Kaufman Brothers analyst Vik Grover. "Further, we believe it is paramount to WorldCom's success to eliminate the quarter-billion-dollar annual dividend."

WorldCom's spokesman Brad Burns said the firm "has not contemplated" the reconsolidation of the units but said the firm expects to pay the $2.40 per share annual dividend for the rest of the year.

In its statement Friday, WorldCom said it expects revenue of between $21.0 billion and $21.5 billion in 2002, about $1 billion below the company's prior forecast and analysts' consensus estimate.

EITDA, or earnings before interest, taxes depreciation and amortization, is also expected to be about a billion below the consensus forecast at $7.0 billion to $7.5 billion.

The lowered numbers stem "primarily from volume reductions associated with current economic conditions, including lower voice volumes and Internet and data network reductions by enterprise customers."

In addition, the firm reduced capital expenditures to $4.5 billion, compared with previous plans to spend $5 billion to $5.5 billion.

Wide Miss

Although the profit warning did not come as a complete shock, the degree to which WorldCom will miss the consensus estimates caught some Wall Street analysts off guard.

"While not completely unexpected given the recent and generally poor results reported by other large wirleline telecom services companies, the magnitude of the reduction, particularly at the EBITDA line, was a surprise," said Bear Stearns' Fagin.

Indeed, the news sparked a slew of downgrades Monday, with four analysts recommending that investors sell the stock.

Guzman & Co. analyst Patrick Comack said WorldCom could fall as low as $3 while Credit Suisse First Boston has a price target of $2, more than 50% below where the stock is currently trading.

Back in February, chief executive officer Bernard Ebbers said bankruptcy or a credit default was "not a concern" and that questions about the firm's viability were "utter nonsense" but the rumors have battered WorldCom's stock, sending it down 71% so far this year.