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Worldcom bankruptcy Original Source Link: (May no longer be active)
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WorldCom Says to File Bankruptcy Sunday
PHILADELPHIA (Reuters) - WorldCom Inc. said it will file Chapter 11 bankruptcy protection later Sunday in the nation's largest insolvency after the long-distance telephone and data services company buckled under a $3.85 billion accounting scandal and a mountain of "junk-rated" debt.
"Because we're going to restructure our balance sheet and reduce our debt, we think we can emerge from the Chapter 11 process a stronger and healthier company," WorldCom Chief Executive John Sidgmore said on Sunday in a telephone interview.
WorldCom, which has 85,000 employees and operations in 65 countries, said it expects to hire a restructuring expert to aid the current management team, and it aims to emerge from Chapter 11 in about 9 to 12 months. The bankruptcy would not include the international operations.
The company, which has more than 20 million customers, will have up to $2 billion in debtor-in-possession funding that would allow it to keep operating, maintain its network and pay employees under a bankruptcy reorganization, Sidgmore said.
The Chapter 11 filing by WorldCom would follow once high-flying companies like energy trader Enron Corp. and Global Crossing Ltd., which crumbled into bankruptcy amid a crush of accounting investigations by federal regulators.
WorldCom last month disclosed it improperly accounted for $3.85 billion in expenses and fired its former chief financial officer, Scott Sullivan, who it alleged orchestrated the accounting debacle.
Its former chief executive, Bernie Ebbers, resigned under pressure in April. WorldCom was charged with fraud by the U.S. Securities and Exchange Commission and faces lawsuits from several state pension funds, which alleged WorldCom provided misleading information during a 2001 bond offering.
The company expects to reduce its debt through a debt-for-equity swap that would give its bondholders an ownership stake in the reorganized company, Sidgmore said.
"We've had very positive conversations through our lawyers and bankers with the bondholders so far. ... I think we're going to be able to convince people that owning our equity is a good deal. As we emerge from bankruptcy stronger I think the company will have very good prospects," Sidgmore said.
FUNDING WILL KEEP COMPANY OPERATING
The DIP financing, as well as savings from interest payments on debt, will meet all of WorldCom funding requirements over the next year, he said.
"We'll have financing that will be up to $2 billion. We'll be funded immediately, assuming the court approves it tomorrow morning, to the tune of about $750 million. We think that will last us at least a year and we'll emerge from bankruptcy without any other additional requirements," Sidgmore said.
"I think it's fair to say that we will use some of the DIP financing early on, but we will leave the lion's share of it untapped," he said.
The bankruptcy status, which shields it from its creditors and debts, will free up about $2 billion a year in interest payments WorldCom normally must pay on its more than $30 billion in debt, Sidgmore said.
"That's really the overhang on WorldCom for the past year and half, or two years. With the mountain of debt we had ... (it) requires a couple of billion a year in interest payments. And that kind of gets in your way," Sidgmore said.
Citigroup Inc., J.P. Morgan Chase & Co. and General Electric Co.'s GE Capital financing arm will provide WorldCom with the DIP funding, which will be backed by the company's assets, sources familiar with the situation said.
WorldCom said it has not lost any of its major customers and it did not expect the bankruptcy to hurt service.
"With the DIP financing, we're much more stable financially than we would have been under another scenario. I see no chance of service disruptions or network outages or all these things that people have been concerned about," Sidgmore said.
If WorldCom emerges from bankruptcy with a stronger balance sheet and minimal debt, "that will give us certain advantages, (but) I really doubt that you're going to see us beginning a price war as a result of this," he said.
Shares of WorldCom closed Friday at 9 cents on Nasdaq. The company's once high-flying stock, which rocketed to $64 in 1999, had made it one of the darlings of the Wall Street bull market. Its swift drop epitomized the bombed-out telecom industry that crumbled under a glut of capacity, excess debt and accounting scandals.
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07/21/2002 20:25
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