Conglom's financial concerns calmed

AOL Time Warner’s bonds — which remain rated investment grade but had been trading at junk-yield levels — rose Tuesday as investor jitters over the conglom’s debt eased following its $10 billion credit refinancing.

AOL TW’s bonds are rated Baa1 by Moody’s Investors Service and BBB+ by Standard & Poor’s, but the depressed bonds have been carrying yields normally associated with junk-rated companies. That’s led to some market speculation that an actual ratings downgrade could be in the offing.

On Monday, New York-based media giant announced the closing of two new credit facilities backed by a 27-lender syndicate (Daily Variety, July 9). Notably, the agreements were free of any covenants stipulating that ratings downgrades could hinder borrowing.

Investor fears over conglom liquidity were thus allayed and the bonds began trading higher.

The new credit lines carry higher interest costs than the ones they replace, but terms were still considered favorable amid current gloomy market conditions.

“With investor concerns over just about everything these days, it’s nice for them to be able to lock in a new facility under good terms,” Banc One Markets analyst Jeff Cannon said.

AOL TW is expected to report its second quarter results July 24.

Conglom shares, which have shed 56% of their value since Jan. 2, fell a penny to $13.99 after a broadly downbeat sesh Tuesday. The blue-chip Dow Jones Industrial Average closed off 178.81 at 9,096.09.

(Bloomberg News contributed to this report.)

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