WorldCom Inc. won court approval Friday to exit the biggest bankruptcy filing in U.S. history, allowing the company to emerge by early next year with a fraction of its original debt and leave behind an $11-billion accounting fraud.
U.S. Bankruptcy Court Judge Arthur Gonzalez in Manhattan approved a restructuring plan that erases $36 billion of WorldCom's $41 billion in debt, pays some creditors about 36 cents on the dollar and wipes out existing shareholders. The Ashburn, Va.-based company will change its name to MCI.
WorldCom, the second-largest U.S. long-distance telephone provider, overcame objections by AT&T; Corp. that the company was a criminal enterprise and shouldn't be freed from its liabilities while other carriers battle a fourth year of slumping demand.
The ruling is a victory for WorldCom Chief Executive Michael Capellas, who promised to steer the company out of its 15-month bankruptcy case by the end of the year.
"Against all odds, we have reached our confirmation faster than anyone expected," Capellas said.
Capellas was hired in December to rescue WorldCom after an accounting scandal that led to criminal charges against former Chief Executive Bernard J. Ebbers and former Chief Financial Officer Scott D. Sullivan. The Justice Department has left open an option to indict WorldCom for inflating its profit by disguising expenses as capital investments.
WorldCom shareholders lost about $180 billion in the bankruptcy, 30,000 employees were fired, and the value of other carriers dropped as the fraud sapped investor confidence. Stakeholders have 10 days to appeal Gonzalez's ruling. WorldCom has said it plans to come out of bankruptcy protection within 120 days.
WorldCom listed $107 billion of assets in its July 2002 bankruptcy filing, a record for a company in Chapter 11 protection. The company still faces a Justice Department investigation and a racketeering lawsuit from AT&T.; At least 20 U.S. states have sought permission to investigate possible tax claims against the company.
The provider has yet to reach a final tally of hidden losses, which were first estimated at $3.85 billion and have ballooned to more than $11 billion.
The company also must pay $750 million to the Securities and Exchange Commission to settle its civil fraud case. The money will go to certain shareholders and investors who lost money.