WorldCom could not have hit the world's credit investors harder. Bond markets bounced back just two weeks after Enron's demise but Enron only had $5 billion to $6 billion in debt outstanding. WorldCom's bonds alone have a face value of $29 billion. Investors were already suffering from a US telecoms meltdown, which forced WorldCom bonds down to junk levels. But then WorldCom euro-denominated bonds fell to just 11% of face value on June 26, the day after the fateful earnings restatement, with $16 billion to $17 billion wiped off their value in a single day.
The results have been painful, even in Europe. In the synthetic CDO sector alone, 58 CDOs in the US and Europe had a par exposure to WorldCom bonds of around $1 billion, according to Moody's, with 30% of this euro-denominated. Nearly all the investment-grade cashflow CDOs rated by Moody's also had exposure. "WorldCom was mostly bond funded," says one market player. "If you had to pick a telecom that would have global impact, that would be it. It did have a truly global impact on portfolios and CDOs but then investors already knew they had problems."
Perhaps fund managers still holding WorldCom paper should have expected a rough ride.