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UVA-F-1237 WorldCom, Inc.: Corporate Bond Issuance

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UVA-F-1237

WORLDCOM, INC.: CORPORATE BOND ISSUANCE Gary Brandt, treasurer of WorldCom, Inc., could not remember a year quite like the last. WorldCom had stunned the financial community in November 1997 with a $37-billion bid for MCI Corp., besting rival bids by British Telecommunications (BT) and GTE. Now WorldCom was about to do the same in the corporate bond market as it readied to issue what could be the largest corporate debt issue ever. With the MCI deal scheduled to close soon, financing had to be arranged to repurchase the 20% stake BT held in MCI. WorldCom announced, through its investment banker, Salomon Smith Barney, intentions to market $3 billion to $4 billion of debt in the first week of August 1998. If there was sufficient demand, the offering could be increased to $6 billion, exceeding by a considerable margin the previous record of $4.3 billion, set by Norfolk Southern Railroad in May 1997.1 The market reception and pricing of the bond were made more difficult by the turbulent conditions in the bond and equity markets in recent weeks. Brandt had received some preliminary estimates of the costs of the issue from his bankers. But because it would be the firm’s task, not the bankers’, to see that the terms of the debt were eventually met, he decided to develop his own estimate of the costs of the new bonds.

Company WorldCom was started in 1983 in Hattiesburg, Mississippi, as Long Distance Discount Services (LDDS) by Bill Fields and a group of investors that included Bernie Ebbers.2 The breakup of AT&T, in 1983, encouraged other companies to enter the long-distance telephone business. LDDS leased a Wide Area Telecommunications Service (WATS) line and resold time to other businesses. The firm initially did well until WATS line prices increased.

1

If successfully completed, the WorldCom offer would also overshadow the largest junk-bond offering: RJR Holdings Capital’s $6.11-billion deal priced in 1989. Because many of the RJR bonds sold at discount, proceeds amounted to only $4 billion. 2 Information on WorldCom’s history was developed from annual reports and Dow Jones News Retrieval Service.

This case was prepared by Susan Chaplinsky, Associate Professor of Business Administration. It was written from public data as a basis for discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 1998 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means— electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 1/07. ◊

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Following a period of losses, the board appointed Ebbers chief executive officer (CEO) in 1985. Ebbers immediately instituted cost-control measures, began stressing customer service to new clients, and customized each client’s service to its calling patterns. Within six months, LDDS was back in the black. LDDS capitalized on its own success by acquiring other long-distance start-ups experiencing similar trouble. Employing the same turnaround procedures with other failing companies, LDDS was able to greatly expand its business at low cost. In 1989, LDDS merged with Advantage Company, a publicly traded long-distance telephone company, making LDDS public as a result. By the end of 1991, the company had purchased five additional companies, for a total of $100 million, expanding its network to 27 states. In 1992, LDDS merged with Atlantabased Advanced Telecommunications and became the fourth-largest long-distance carrier in the United States. The pace of acquisitions increased as the prominence of the company grew. In 1993, LDDS merged with Metromedia Communications and Resurgens Communications Group. LDDS Communications merged with IDB Communications Group, a satellite-communications company, in late 1994. The next year, the company spent $2.5 billion for William Cos. subsidiary WilTel’s 11,000-mile fiber-optic cable network. To reflect its growing global aspirations, the company changed its name to WorldCom in 1995. The Telecommunications Act of 1996 substantially rewrote the industry’s rules by allowing local-access telephone companies and long-distance companies to compete against each other. WorldCom took advantage of the change with the $14.4-billion purchase of local-access provider MFS Communications in 1996, which included the subsidiary UUNET Technologies (an Internet access provider). With WorldCom’s subsequent acquisitions of the America Online networks (ANS Communications) and CompuServe networks (CompuServe Network Services), the company became a leader in this rapidly growing market. As a result of the MFS merger, WorldCom became the first company since the breakup of AT&T to offer local and longdistance services over its own network. All of the previous acquisitions, however, paled in comparison to WorldCom’s offer to purchase MCI Corp. for $37 billion in November 1997. The offer nullified MCI’s previous pact with British Telecommunications and beat a rival bid from local-service provider GTE. Completion of the deal would move WorldCom from being the fourth-largest long-distance telephone company in the United States to being second only to AT&T. The combined company, MCI-WorldCom, would have more than $30 billion in 1998 revenues. The boards of directors of both companies unanimously approved the transaction.

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The Bond Issue In January 1998, the firm filed a shelf-registration statement with the U.S. Securities and Exchange Commission seeking permission to raise up to $6 billion over the next two years.3 Most market observers expected WorldCom to raise this amount of funding through several smaller debt offers, and thus were somewhat surprised to learn in July that all $6 billion might be raised in one offer. WorldCom planned to use its own stock to buy the public shares of MCI that did not belong to British Telecommunications. As part of the deal, WorldCom agreed to pay BT $6.94 billion in cash for its 20% stake in MCI. WorldCom had a large commercial-paper program, however, and MCI was cash-rich following the sale of its Internet business to Cable & Wireless for $1.75 billion. In addition, WorldCom had recently agreed to a new $12-billion bank credit facility. The credit facility consisted of a $5-billion term loan due in 2002 and a $7-billion, 364-day revolver that could be renewed for two more years.4 All these factors seemed to argue in favor of a smaller public offer. WorldCom did appear to have continuing cash needs to fund future acquisitions and large-scale capital improvements. Just the previous week, MCI had announced the purchase of Brazil’s long-distance carrier, Embratel, for $2.3 billion. WorldCom was spending $2.5 billion a year to improve its infrastructure. For his part, Brandt believed that WorldCom had ample need for the funds, and he was hopeful that market conditions would be such that the firm could raise $6 billion in one shot. Initially, he planned to use the bank debt to pay BT, and thereafter to pay off the bank debt with the newly issued bonds. The issue called for four tranches of debt to be offered: •

$1.5 billion in 3-year notes

•

$1.0 billion in 5-year notes

•

$2.0 billion in 7-year notes

•

$1.5 billion in 30-year bonds

Following market convention, the debt issues would carry an annual fixed coupon rate, but interest would be payable to holders on a semiannual basis. No specific assets or collateral were pledged on the bonds, and only a few standard covenants appeared in the indenture. In the words of one market observer, WorldCom’s offer was “plain-vanilla debt—a whole lot of plain-vanilla debt.” Exhibit 1 lists the covenants on the credit facility and proposed public bond issue.

3

Shelf registration enabled large investment-grade issuers to qualify in advance for SEC approval of future security sales. Once the shelf registration was approved, an issuer could issue any amount up to the shelf limit without further regulatory delay. This procedure afforded issuers greater flexibility to respond in a timely manner to market conditions. 4 The interest rate on the credit facility was tied to the Eurodollar borrowing rate plus an applicable margin of approximately 40 basis points. A basis point was 0.01%, or 0.0001; 100 basis points (bp) equaled 1.0%. For July 1997, the 3-month Eurodollar rate was 5.57%, and the 3-month commercial-paper rate was 5.50%.

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From the firm’s point of view, now seemed to be a good time to issue. The MCI merger had boosted awareness and interest in the firm. Investors had responded favorably to the announcement of the merger. (Exhibit 2 presents evidence on the stock-price response to recent telecommunications mergers.) The company had cobbled together various communications companies to offer business customers everything from domestic and long-distance telephone service to Internet access, and by the summer of 1998, many observers viewed WorldCom as the industry leader. “They’re the farthest ahead in giving the customer end-to-end telecommunications solutions. They have the model that the other phone companies are trying to emulate,” said Patrick Cassidy, an analyst at T. Rowe Price.5 In addition to the glow of the MCIWorldCom merger, WorldCom had recently reported second-quarter revenues of $2.61 billion, a 45% increase over the same period of the previous year. Net income was $228 million, compared with $44 million the previous year. Exhibit 3 gives selected information on WorldCom’s financial performance. Exhibit 4 compares WorldCom with other long-distance telephone companies. It was widely believed by market observers that WorldCom’s debt, which was currently rated Baa2 by Moody’s Investors Service and BBB+ by Standard & Poor’s, would be upgraded to the low single-A area in the upcoming year. Exhibit 5 provides the bond-rating definitions.

Market Conditions The devaluation of the Thai currency in June of 1997 precipitated a major financial crisis that spread to Malaysia, Indonesia, Korea, Hong Kong, and other regional markets over the ensuing months. In its wake, these countries experienced depressed economic conditions and plummeting equity markets. U.S. financial markets also experienced considerable turmoil and uncertainty over the extent that the global crisis would hurt the U.S. economy. These concerns were most acute in the months following the Hong Kong crisis in October 1997, and eased somewhat in the first half of 1998, as the U.S. economy showed continued strong performance. In mid-July, however, fears of a deepening crisis resurfaced. The Japanese yen deteriorated to an eight-year low against the U.S. dollar, as investors lost confidence in the government’s ability to resolve its banking crisis. The weakness in Japan threatened to engulf China, which had resisted devaluing its currency. In addition, the domestic U.S. economy showed signs of slowing corporate profitability in the second quarter. Finally, a mounting political crisis threatened the U.S. president, Bill Clinton, raising concerns about his effectiveness and tenure in office. All these factors combined to take a toll on the U.S. equity markets. The Dow Jones Industrial Average dropped 99 and 300 points on Monday and Tuesday of the projected issue week. Tuesday’s drop was the third-largest percentage loss in Dow history. Similar percentage losses were registered for the S&P 500 and NASDAQ averages. Analysts were sharply divided on the portent of these events for future economic activity. As money left the stock market, some flowed into corporate and Treasury securities. Exhibit 6 gives information on the movements in

5

“WorldCom Readies for a Record Investment Grade Deal and Corporate Bond Yields Rise in Anticipation,” Barron’s (August 3, 1998): MW11.

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interest rates in recent weeks. Exhibit 7 provides a longer-term view of corporate and government rates and spreads. A second factor of concern was the large volume of debt issues scheduled for issuance in the first week of August. A heavy calendar of debt issues had been a feature of the market all year. Investment-grade issues were on course to beat last year’s record, while high-yield issues were already within striking distance of last year’s record.6 Some $40 billion in debt issues, two to three times the usual amount, was scheduled to price the same week as WorldCom’s issue. The large supply coming to market put pressure on corporate bonds. The recent turmoil had also raised concerns among investors about the quality of the debt. Jacques de St. Phalle, head of fixed income at Bear Stearns, noted that “investment-grade companies were taking two to three days to market deals before pricing them. That’s something only junk-bond investors with complicated stories used to take time out for. And when new deals do get sold, they are priced at a concession to issues already outstanding.”7 Long-term corporate yield spreads over Treasuries had increased over the last several weeks. Further widening of the spread could occur if the markets did not settle soon. Volume of U.S. Security Issues (in billions of $US) 1998 1997 (through 6/30) (through 6/30) Corporate Debt Investment grade High yield Common stock

$380.0 99.8 $ 73.0

$246.0 58.3 $ 47.2

1997

1996

$721.5 125.0 $118.0

$510.0 72.2 $115.0

Source: Security Data Corporation.

In the days leading up to the issue, the firm’s investment bankers gathered information from market sources in anticipation of the final pricing meeting, scheduled for August 6. The syndicate desk at Salomon Smith Barney was responsible for pricing the new bonds. The pricing process began by determining the “price talk” for the new issue. Basically, this amounted to finding the approximate spread over Treasuries that investors would demand for each tranche of debt. Once the syndicate desk set the price talk, the deal was marketed to investors and the “book” was built. The book was simply the number of orders for WorldCom bonds received at each spread level in the price talk. If investors were clamoring for the deal, then the bond would carry a low spread and yield to maturity (i.e., price at the tight end of the price talk). Otherwise, the syndicate desk would need to increase the spread in order to attract enough investor interest.

6

Investment-grade debt typically had rating classifications of BBB, Baa, or better. High-yield or so-called junk bonds had ratings of BB, Ba, or below. 7 “WorldCom Readies for a Record Investment Grade Deal,” MW11.

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Exhibit 8 contains basis-point spreads for corporate debt over comparable-length Treasury securities for various bond-rating categories. Although the spreads pertained to industrial issues, Brandt believed they would offer some basis for estimating the yield to maturity on WorldCom’s new bonds. In addition, he had assembled data on the recent prices of the bonds of telecommunications and media firms (Exhibit 9), which might serve to indicate what investors expected by way of return.

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Exhibit 1 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Covenants Contained in WorldCom’s Proposed Public Bonds and New Bank Credit Facility Description

Rationale

Mergers, Consolidations and Transfer of Assets

The Company may consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into any other corporation, provided that in any such case, either the Company shall be the continuing corporation, or the successor corporation shall be a corporation organized and existing under the laws of the United States and shall assume all covenants of this indenture.

Restrict mergers, consolidations, or sale of all of an issuer’s assets that would result in an impaired credit from the perspective of the creditor.

Limitation on Liens

The company shall not, and shall not permit a subsidiary to, create any Lien upon any of its Property or assets, whether now owned or hereafter acquired, unless it has made or will make effective provision whereby the Securities will be secured by such Lien equally and ratable with all other indebtedness of the Company.

Protect relative seniority to income producing assets.

Public Bond Covenants

Credit Facility Covenants

Description

Rationale

Limitations on Additional Indebtedness

Limits the ability of the Company to incur additional indebtedness unless the Company exceeds a specified ratio of EBITDA to interest expense or maintains a certain level of total debt to total capitalization on a pro forma basis.

Limit additional debt unless cash flow is sufficient to service it. Maintain credit quality/rating.

Limitations on Asset Sales and Disposition of Asset Sales Proceeds

The Company cannot make an Asset Sale unless the Board of Directors determines that the Company receives Fair Market Value and unless at least a portion of the proceeds from the Asset Sale are received in cash. Proceeds from the sale may have to be used to repay Senior Debt or invest in the business within one year.

Maintain “asset coverage” of debt; ensure assets remain dedicated to main lines of business; retain relative risk profile of investment.

Additional Situational Covenants

In WorldCom’s case, $7 billion of the credit facility will be reduced to $3 billion if the MCI/WorldCom merger is not complete by October 5th, 1998. Any amount outstanding on the credit facility above and beyond $3 billion would have to be prepaid by the company at that point.

The large credit facility was extended with the understanding that MCI’s additional cash flow would support it.

Limitations on Restricted Payments and Investments

An incurrence test that limits the ability of the Company to pay dividends, repurchase stock or make investments in certain entities (e.g., joint ventures). The Company may be able to make “Restricted Payments” over time of up to 50% of Consolidated Net Income plus a defined “Restricted Payments Basket.”

Prevent cash from leaving Company; prevent Company from prioritizing its cash flow for the benefit of junior creditors/equity.

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Exhibit 2 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Stock-Market Response to Recent Telecommunications Deals from Announcement of Deal through Closing Date or July 31, 1998, Whichever Is Sooner

Percentage Change from Deal Announcement to Close Proposed Transaction

Buyers Bell Atlantic agrees to acquire NYNEX Deal closed August 14, 1997 SBC Corporation will buy Pacific Telesis Deal closed April 1, 1997 WorldCom agrees to buy MCI1 AT&T will buy cable company, TCI1 Sellers MCI agrees to be bought by WorldCom1 Ameritech agrees to be bought by SBC1

1

Deal pending as of July 31, 1998.

Source: Wall Street Journal, July 31, 1998, C1.

Date Announced

Share Price

S&P 500

Industry Index

April 22, 1996

+36%

+75%

+56%

April 1, 1996

+66%

+74%

+61%

Nov. 10, 1997 June 24, 1998

+72% −2%

+22% −1%

+40% +4%

Nov. 10, 1997 May 11, 1998

+57% +8%

+22% +2%

+40% +3%

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Exhibit 3 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Selected Financial Information for WorldCom, Inc. (in thousands of dollars, except ratios and per share data)

Revenues Operation income (loss) Interest expense Income (loss) before extraordinary item Extraordinary item Net income (loss) Preferred dividend requirement EPS-basic before ex item EPS-diluted before ex item EPS-basic EPS-diluted Shares outstanding-basic Shares outstanding-diluted Total assets Long-term debt Shareholders’ equity Debt/total assets Quick ratio Current ratio Asset turnover Return on equity Return on assets

1997

1996

1995

1994

$7,351,354 1,098,606 319,700 383,652

$4,485,130 (1,844,094) 221,800 (2,188,944)

$3,696,345 675,144 249,100 266,271

$2,245,663 66,528 47,300 (124,013)

(24,434) 383,652 (2,213,378) 26,433 860 0.40 (5.50) 0.40 (5.50) 0.40 (5.56) 0.40 (5.56) 898,889 397,890 959,816 397,890 22,389,553 19,963,1976 6,527,207 4,803,581 13,509,865 12,959,976

266,271 33,191 0.67 0.64 0.67 0.64 346,666 402,577 6,656,629 3,391,598 2,187,681

(124,013) 27,766 (0.48) (0.48) (0.48) (0.48) 315,610 315,610 3,441,474 794,001 1,827,410

67.0% 0.3 0.3 0.7 12.2% 4.0%

46.7% 0.7 0.8 0.7 −6.8% −3.6%

39.7% 0.6 0.8 0.3 2.8% 1.7%

34.7% 0.6 1.2 0.3 −17.1% −1.1%

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Exhibit 4 WORLDCOM, INC.: CORPORATE BOND ISSUANCE WorldCom, Inc., in Comparison with Industry Peer Group

Price Change Latest week (7/31/98) Last 4 weeks Last 52 weeks Year to date (YTD) Change vs. S&P 500 Latest week (7/31/98) Last 4 weeks Last 52 weeks YTD Price ($) Latest close (7/31/98) P/E ratio Price/book value Price/revenue Revenue 12 months ($ mil.) Fiscal year ($ mil.) Change last qtr. Change YTD Earnings 12 months ($ mil.) EPS 12 months ($) EPS fiscal year ($) Ratios Profit margin Return on equity Return on assets Revenue/assets Debt/equity Interest coverage Current ratio Source: Dow Jones & Company, Inc.

WorldCom, Inc.

Telephone, Long Distance

!8.4% !3.7% 47.9% 60.1%

!7.1% !3.1% 43.8% 9.8%

96% 105% 129% 145%

97% 105% 125% 99%

48.44 242.2 204% 563%

50.28 47.9 339% 228%

8,864.6 7,351.4 47.5% 43.9%

102,861.6 99,962.5 4.7% 5.9%

202.5 0.20 0.40

5,246.5 1.05 1.27

2.3% 2.8% 1.7% 34% 56% 3.5 0.8

5.1% 8.3% 4.3% 73% 48% 9.3 1.0

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Exhibit 5 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Moody’s Bond-Rating Definitions Aaa

Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

Aa

Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities.

A

Bonds that are rated A possess many favorable investment attributes and are to be considered uppermedium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.

Baa

Bonds that are rated Baa are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Security for interest payments and principal appears adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics, and in fact have speculative characteristics as well.

Ba

Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered well assured. Often, the protection of interest and principal payments may be very moderate and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

B

Bonds that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa

Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca

Bonds that are rated Ca represent obligations that are speculative to a large degree. Such issues are often in default or have other marked shortcomings.

C

Bonds that are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Source: Moody’s Industrial Manual (1995), page vi.

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Exhibit 6 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Recent Movements in Interest Rates Month Ending Yields to maturity in % per annum

Jun 1998

Week Ending Jul 10

Jul 17

Jul 24

Jul 31

5.12 5.32 5.41 5.52 5.52 5.56 5.56 5.50 5.80 5.70

5.08 5.23 5.34 5.43 5.44 5.41 5.47 5.41 5.71 5.61

5.15 5.23 5.36 5.46 5.48 5.47 5.54 5.49 5.82 5.71

5.08 5.25 5.36 5.47 5.47 5.47 5.52 5.46 5.79 5.68

5.07 5.21 5.37 5.48 5.48 5.51 5.56 5.50 5.83 5.73

5.78

5.69

5.80

5.77

5.81

6.48 7.09 6.89

6.58 7.17

6.56 7.15

6.60 7.20

Treasury Constant Maturities 3-month 6-month 1-year 2-year 3-year 5-year 7-year 10-year 20-year 30-year Composite Over 10 years (long-term) Corporate Bonds Moody’s seasoned Aaa Baa A-utility

6.53 7.13 6.98

Source: Board of Governors, Federal Reserve System.

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Exhibit 7 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Recent Yields to Maturity and Spreads of Moody’s Baa-Rated Corporate Debt and U.S. Treasury over 10-Year Composite Rate Recent History of Yields 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0

Baa Corp. Rate

US 10 Yr Comp. Rate

Spread: Baa Rate - US 10 Yr Composite Rate 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5

Source: DataStream.

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Exhibit 8 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Spreads of Corporate Bonds over Comparable Maturity Treasuries for Standard & Poor’s Bond-Rating Categories Industrial Issues (July 31, 1998) Rating AAA AA A+ A A− BBB+ BBB BBB− BB+

1 Yr. 28 33 37 40 44 50 55 64 82

2 Yr. 34 37 41 43 51 58 67 76 99

3 Yr. 34 36 39 44 56 66 71 81 110

5 Yr. 33 35 42 60 63 75 85 92 127

7 Yr. 31 34 49 60 68 82 88 99 142

Compiled from averages of bonds rated by Standard & Poor’s. A basis point is 0.01%, or 0.0001; 100 basis points (bp) equal 1.0%. Source: Bloomberg.

10 Yr. 37 44 56 70 83 89 100 114 164

30 Yr. 50 59 84 93 100 107 120 128 149

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Exhibit 9 WORLDCOM, INC.: CORPORATE BOND ISSUANCE Close Prices on July 31, 1998, of Corporate Bonds Issued by Telecommunications and Media Companies

Company News America Holdings New England Telephone ATT Corp. GTE Corp. Century Telephone Enterp. GTE Corp. News America Holdings WorldCom MCI Corp. 360 Communications GTE Corp. News America Holdings WorldCom GTE Corp. Ameritech Corp. News America Holdings

Years to Final Maturity 2 3 3 3 5 5 5 6 6 7 7 7 8 30 30 30

Type of Security

Coupon

S&P Rating

Moody Rating

Notes Notes Notes Notes Senior Notes Debentures Notes Senior Notes Senior Notes Senior Notes Debentures Notes Senior Notes Debentures Debentures Notes

7.450% 8.630% 5.125% 6.390% 6.550% 9.100% 8.625% 7.550% 7.500% 6.550% 6.360% 8.500% 7.750% 6.940% 6.550% 7.750%

BBB− AA AA A BBB+ A BBB− BBB+ BBB+

Baa3 Aa2 Aa3 Baa1 Baa1 Baa1 Baa3− Baa2 Baa2 Baa1 Baa1 Baa3 Baa2 Baa1 Aa3 Baa3

A BBB− BBB+ A AA+ BBB−

Price per $100 of Face Value 102.45 107.25 98.5 100.68 101.74 111.85 109.12 105.75 105.88 103.7 99.75 110.50 107.70 100.56 99.25 106.63

Note: Standard & Poor’s uses + and − to indicate finer distinctions between the rating categories. Moody’s uses the numbers 1, 2, and 3. An A1 bond is better than an A2 bond, and an A2 bond is better than an A3 bond.