A day after filing the world's largest corporate bankruptcy, WorldCom Inc. on Monday got court approval for US$2 billion in funding to keep operating during a reorganization that, if successful, could erase more than 75 percent of its debt.
WorldCom, the No. 2 US long-distance telephone and data services company, filed for Chapter 11 bankruptcy protection on Sunday, brought down by a US$3.85 billion accounting scandal and a mountain of junk-rated debt. The bankruptcy does not include its international operations.
The Clinton, Mississippi-based company, which transmits half of the world's Internet traffic, plans to hire a restructuring expert to aid its current management team. It aims to emerge intact from Chapter 11 in about nine to 12 months with less than a quarter of its US$30 billion debt load.
"The reorganization here is not going to be a liquidation," WorldCom Chief Executive John Sidgmore said at a press conference in New York. "I think our plan is going to be to keep the company intact."
President Bush said he was "very concerned" about the impact of WorldCom's bankruptcy on workers, investors, and the economy, and urged Congress to crack down on unethical corporate conduct, a White House spokesman said on Monday.
On Wall Street, the blue-chip Dow average fell below 8,000 for the first time since mid-October 1998, pushed lower by an 11 percent decline in Citigroup Inc., which was among the leading lenders to WorldCom and collapsed energy trader Enron Corp. .
Last month, WorldCom disclosed it improperly recorded US$3.85 billion in expenses and fired former Chief Financial Officer Scott Sullivan, who it alleged orchestrated the accounting debacle. The company, which is reviewing its books as far back as 1999, said on Monday it does not expect to release its second-quarter earnings on July 25 as previously scheduled.
WORLDCOM BURNED THROUGH CASH
WorldCom said it was forced into bankruptcy after its cash supply, which totaled US$2 billion less than three weeks ago, dwindled on Friday to about US$200 million -- the amount it pays to connect to other telephone company networks each week.
It said its cash pile shrank as it funded its European operations, while some vendors began demanding up-front payments as news of WorldCom's financial woes emerged.
The company on Monday got approval from the U.S. Bankruptcy Court for the Southern District of New York for up to US$2 billion in interim debtor-in-possession (DIP) funding to keep operating, maintain its network, and pay employees under the bankruptcy reorganization.
A hearing will be held on Sept. 4 to formally approve the DIP funding, which will be provided by Citigroup, J.P. Morgan Chase & Co., and General Electric Co.'s GE Capital financing arm.
The troubles with WorldCom, which listed US$107 billion in assets and US$41 billion in debt, follow turmoil at companies like Enron and Global Crossing Ltd., which crumbled into bankruptcy amid a crush of accounting investigations by federal regulators.
The Securities and Exchange Commission charged WorldCom with fraud and the Department of Justice opened an investigation into the company. WorldCom said it could take until the end of the year to get audited financial results from its new accounting firm KPMG.
The DOJ on Monday, through the United States Trustee in New York, requested an independent examiner be appointed in the WorldCom bankruptcy to increase public confidence in the handling of the case and protect small investors.
AIMING TO ERASE DEBT, STAY INTACT
"The value in WorldCom is not in the switches and pipes we have underground, the hard assets. It's in the 20 million customers, the brands, the customer relationships. That's what creates the value here. Breaking it apart does not create value," Sidgmore said.
WorldCom has said it wants to sell its wireless telephone business, as well as assets in Latin America and Japan. But it has no plans to shed its prized UUNet Internet division, its data operations or the business and residential long-distance telephone operations.
Shares of WorldCom surged 5 cents, or 55 percent, to close at 14 cents on Nasdaq, while its bonds traded at 12 to 13 cents on the dollar. The company expects to reduce its debt through a debt-for-equity swap that would give bondholders an ownership stake in the reorganized company. WorldCom's current stockholders will recover little, if any, value for their investment.
A WAY OUT
If WorldCom emerges from bankruptcy with minimal debt, it would have a lower cost structure and the flexibility to slash prices. That could put added pressure on rivals already struggling with a glut of high-speed networks and weak demand.
"Were this company to be able to emerge with a restructured balance sheet, but its business largely intact ... then it could indeed be a more formidable competitor than it has been of late," said Merrill Lynch analyst Adam Quinton.
Other analysts contend that WorldCom's brand name may suffer irreparable harm if customers associate the company with the corporate scandals that have added to the investor unease on Wall Street and pushed stock markets down to their lowest levels since 1998.
WorldCom, which has more than 20 million customers and operations in 65 countries, said it does not expect its bankruptcy to disrupt service to residential, business or governmental clients. It said it has not lost any major customers.
"I think it would be naive to think they're not going to lose some customers," said Alan Mintz, senior managing director for Bear Stearns. "The question is, 'How quickly can they get the company restructured or sold?' That will really be the determining factor of what the ultimate value is."
(China Daily July 23, 2002)
