WorldCom in Talks to Get $3 Billion in Funding
WorldCom Inc. said Tuesday that it expects to decide within three weeks whether to pursue bankruptcy protection or some other financial reorganization.
“We have no written formal proposals, but we expect to get term sheets from at least two different sources shortly,” said John W. Sidgmore, chief executive of the U.S. long-distance telephone and data services company embroiled in a $3.9-billion accounting scandal. “I would say within three weeks we’ll know.”
The company said it is in talks to secure $3 billion in funding, rather than the $5 billion it originally sought. That money would give WorldCom a financial cushion to meet its interest payments and operating expenses and stave off a bankruptcy filing.
A bankruptcy filing by WorldCom, which has $30 billion in “junk”-rated debt, would eclipse the Chapter 11 filing by collapsed energy trader Enron Corp. as the nation’s largest insolvency.
WorldCom said it could get some interim financing before it pursues any larger financial reorganization.
Its banks include J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp.
Sidgmore said WorldCom had been contacted by some bondholders about a potential debt-for-equity swap, but no formal discussions have started.
WorldCom, which carries half of the world’s Internet traffic, is pressing ahead with its efforts to unload its unprofitable wireless telephone business and other non-core assets, such as its Latin American investments.
“We’re in discussion on all those, but I can’t comment more without revealing my hand,” Sidgmore said.
Kathleen Abernathy, a commissioner with the Federal Communications Commission, said if WorldCom were forced to pull the plug on its operations, the FCC could delay shuttering of crucial businesses, such as the UUNet Internet business and long-distance telephone network, until customers found new providers.
Sidgmore and WorldCom Chairman Bert Roberts faced Congress on Monday on the accounting debacle, just a day before President Bush called for stiffer penalties for corporate abuses and a tougher federal securities watchdog.
WorldCom’s former CEO Bernard J. Ebbers and its former chief financial officer, Scott D. Sullivan, who were at the helm when the company mishandled its accounts, refused to testify in the nine-hour hearing, invoking their rights against self-incrimination.
In Monday’s hearing before the House Financial Services Committee, Sidgmore said he was not aware of any wrongdoing or crime committed by Ebbers.
“We don’t know of anything to accuse him at this moment,” Sidgmore said.
WorldCom has no plans to renegotiate Ebbers’ severance package, which pays him $1.5 million a year for life, or bonuses he received during his tenure.
WorldCom is trying to recruit new board members and may shuffle the members of its audit committee, Sidgmore said. It expects to get at least two new members to replace Sullivan and Ebbers. Sullivan, who was fired June 24, remains a member of the board, but WorldCom has asked him to resign.
The Securities and Exchange Commission charged Clinton, Miss.-based WorldCom with fraud, alleging that it improperly booked routine expenses as long-term capital investments for five quarters starting in 2001, hiding losses of $1.22 billion.
WorldCom said it would comb its financial statements as far back as 1999.
“There are a few other issues being investigated,” said Sidgmore, who declined to elaborate.
Earlier this year, WorldCom fired its auditor, Arthur Andersen, and replaced the firm, which also worked for Enron, with KPMG.
Sidgmore declined to comment on whether WorldCom would sue Andersen for failing to detect the accounting problems, or to recover fees paid to the auditing firm.
Because WorldCom asked KPMG to scour its books for 1999 and 2000, KPMG must review whether it has any client conflicts that would prevent it from working for the No. 2 U.S. long-distance telephone company.
WorldCom shares fell 2 cents to 21 cents on Nasdaq.
