MCI Communications Corp is to issue up to $655m of zero coupon subordinated convertible notes under a shelf registration statement filed earlier with the US Securities & Exchange Commission. The Liquid Yield Option Notes will become due in the year 2004 and are expected to be offered in early December at a discount from their principal amount at maturity. MCI is looking for proceeds of about $250m from the issue to provide a yield-to-maturity of 6.5% a year (which should anyone want a bond that paid no interest? In certain circumstances, such bonds are very taxefficient for people or corporations with high marginal rates). The notes can be converted into a fixed number of common shares of MCI at any time at the investor’s option and won’t be redeemable by the company for the first two years following issuance unless MCI’s stock is trading at 150% of the conversion price at the time of issue. MCI has the right to call the notes at any time after two years at no premium. Investors can opt to sell the notes to MCI five years after issue for cash, shares of MCI or subordinated extension notes at MCI’s option. Proceeds will be used to help repay MCI’s 9.5% subordinated notes due August 1 1993; Merrill Lynch Capital Markets is the underwriter.
