WorldCom Reorganization Comes Under Scrutiny
WorldCom Inc. today begins the final lap in its bid to emerge from the largest U.S. bankruptcy in history.
Opposition to the company’s exit plan is expected to be fierce as U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan launches the final review, a process expected to last at least several weeks.
AT&T; Corp., a WorldCom creditor, and Sprint Corp. already have voiced opposition to the plan.
Among other things, the court will determine how much money, if any, creditors will recover for their investment in the No. 2 U.S. long-distance telephone and data services firm.
The plan, backed by about 96% of the company’s creditors, would erase nearly $36 billion in debt. If the plan is approved by the Bankruptcy Court, WorldCom would emerge with about $4.5 billion in debt and $1 billion in cash. Rivals say that would give the company a competitive advantage.
“WorldCom is going to do very well and be a big threat to AT&T; and Verizon,” said Gary E. Hindes, managing director of Deltec Asset Management Corp. “It has plenty of cash flow.”
Approval of the plan would allay doubts about WorldCom’s ability to survive an $11-billion accounting scandal.
Crippled by the June 2002 revelation that it hid $3.85 billion in costs, WorldCom sought protection from creditors who were owed $41 billion. The bankruptcy filing wiped out $180 billion in market value, cost 30,000 jobs and led to criminal charges against Bernard J. Ebbers, WorldCom’s co-founder and ex-chairman, and Scott D. Sullivan, its former chief financial officer.
Under the reorganization plan, holders of WorldCom bonds would get about 36 cents on the dollar for their $26 billion in notes. Creditors of the MCI unit, which owned $3 billion of bonds, would get 80 cents on the dollar, while creditors of the Intermedia unit would get about 94 cents on the dollar for about $1 billion in bonds.
Stockholders and a small group of investors holding WorldCom subordinated debt would get nothing. Those debt holders have objected to the plan and the proposal for “substantive consolidation,” which puts the assets and liabilities of the company’s many units into a single pot to pay creditors.
Debt owed among WorldCom subsidiaries to each other totals $1 trillion. The company has argued that it would be unfeasible to untangle that mess of intracompany debt. For example, WorldCom said it could not even determine which entities were involved in about $380 billion of intracompany deals.
On top of the tedious financial details, the scandals surrounding WorldCom could weigh on its future, potentially making it less valuable.
Oklahoma’s attorney general has charged the company and six former executives with violating state securities laws by knowingly giving false information to investors.
WorldCom also faces a probe by the U.S. attorney general in New York and federal regulators to determine whether it improperly routed telephone calls to avoid connection charges.
In addition, AT&T; recently filed a lawsuit accusing WorldCom of racketeering in connection with access fees tied to the routing of those calls. SBC Communications Inc. has accused WorldCom of fee abuses involving those same calls.
WorldCom denies any wrongdoing. “We have basically turned this place upside down,” said Stasia Kelly, WorldCom’s new general counsel. “We still conclude ... that we have found nothing that substantiated the allegations that AT&T; has made against us.”
WorldCom already has been suspended from receiving new federal contracts. A criminal conviction could bar it from getting licenses to operate in certain states, threatening its revenue and viability.
The creditors have estimated that the company, which in its heyday transmitted about half of the world’s Internet traffic, is worth about $12 billion.
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Reuters and Bloomberg News were used in compiling this report.
