WorldCom expects to emerge from Chapter 11 in October

Rivals complain it's getting break in jettisoning of debt

April 15, 2003|By BLOOMBERG NEWS

ASHBURN, VA. - WorldCom Inc., the second-biggest U.S. long-distance telephone carrier, said yesterday that it had reached an accord with creditors that will allow the company to emerge from the biggest U.S. bankruptcy by October.

WorldCom outlined its reorganization proposal in U.S. Bankruptcy Court in New York. Under the plan, the company would be valued at $12 billion, including debt of about $5 billion. WorldCom had $30 billion of debt in July, when it sought Chapter 11 protection after an accounting scandal.

The plan, devised by WorldCom Chief Executive Officer Michael D. Capellas, deals another blow to rivals such as AT&T Corp. and Sprint Corp., which had been forced to keep up with a competitor that was faking profits.

WorldCom's debt will be a fraction of the amount at AT&T and Sprint, giving the company room to cut prices to win customers in a shrinking long-distance market.

"This is an example [of] where crime pays," said Ivan Seidenberg, CEO of Verizon Communications Inc., another WorldCom competitor. "They should liquidate it," he said after giving a speech in Dearborn, Mich.

WorldCom has uncovered $11 billion in accounting errors since June. The company, which has said it carries about half of the world's Internet traffic, listed $107 billion in assets and $41 billion in liabilities in its bankruptcy filing.

The old WorldCom shares have no value and will be replaced by new ones to be owned by the creditors. The company had a market value of more than $180 billion in 1999.

"Are we going to come out with a better cost structure? Obviously, that's what bankruptcy is for," Capellas said in a conference call. Long-distance prices won't continue to plummet, he predicted.

WorldCom, which gets most of its sales from serving corporations such as Johnson & Johnson and Wal-Mart Stores Inc., has moved its headquarters to Ashburn, Va., from Clinton, Miss., and will change its name to MCI Inc.

The company named Robert T. Blakely, a member of the Financial Accounting Standards Advisory Council, as chief financial officer. Blakely, 61, has been head of finance at Tenneco Inc. and Lyondell Chemical, and a managing director of Morgan Stanley. Victoria Harker was WorldCom's interim finance chief.

Former CFO Scott D. Sullivan was fired in June and is the subject of a pending criminal case. He has pleaded not guilty to securities-fraud charges stemming from the company's accounting. Four former WorldCom executives have pleaded guilty to criminal charges and are cooperating with prosecutors.

In November, WorldCom settled a civil fraud case with the Securities and Exchange Commission. Founder and former CEO Bernard J. Ebbers resigned a year ago.

WorldCom had until this week to provide the court with a plan for leaving bankruptcy without the threat of competing proposals from creditors. A committee representing 90 percent of the Chapter 11 claims agreed to the plan. MatlinPatterson Global Advisors LLC, Silver Lake Partners LP and Bain Capital LLC are among the bondholders supporting it, a person familiar with the matter said.

WorldCom's senior bondholders might receive 14.36 shares of new stock for each $1,000 face value, or notes worth 35.9 cents on the dollar. Holders of senior debt at WorldCom's Intermedia local-phone unit will get 37.4 shares, or notes worth 93.5 cents on the dollar. Debt holders at the MCI consumer-phone unit will get notes worth 80 cents on the dollar of principal.

WorldCom expects to have about $1 billion in cash when it leaves bankruptcy, Capellas said. Anything exceeding that amount may be used to buy back stock, WorldCom said.

The company might issue as many as 2 billion new shares to be listed on the Nasdaq stock market. WorldCom, which didn't say when the shares would begin trading, also might seek a loan of as much as $1 billion.

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