WorldCom Considering Reorganization

AP ^ | 7/9/02 | JOHN PORRETTO

[Liz]

JACKSON, Miss. (AP) - WorldCom Inc. says it will know within three weeks whether it will pursue what would be the largest corporate bankruptcy filing in U.S. history.

The Clinton-based long-distance and data services company is on the verge of bankruptcy after disclosing it disguised $3.9 billion of expenses as capital expenditures in a bid to appear more profitable.

WorldCom executives clashed with former auditors Arthur Andersen LLP Monday during Congressional hearings over who's to blame for the improprieties, which prompted President Bush ( news - web sites) to propose tougher penalties for company officials who lie on financial statements.

As the WorldCom case unfolds, the company continues to negotiate with lenders for $5 billion in critical funding — as it was doing before news of the accounting scandal broke June 25.

The company said Tuesday it also was awaiting word from banks on interim financing that could avert a bankruptcy filing — at least for now.

Another option is a debt-for-equity swap with bondholders as part of a prepackaged Chapter 11 filing. A company spokeswoman said chief executive John Sidgmore has been contacted by certain bondholders, but no formal discussions have started.

"We're fighting for our life," Sidgmore testified Monday before a House panel investigating the debacle, which is under investigation by the Securities and Exchange Commission and the Justice Department.

WorldCom has laid off 17,000 of its 80,000 workers, and Sidgmore has said additional layoffs are possible. The company, which has $30 billion in debt, also is looking to sell parts of the business to raise cash.

Telecom analyst Pat Comack of Guzman & Co. in Miami said WorldCom's next move — bankruptcy or not — places bondholders and lenders in a tenuous situation.

Comack said any new bank loans almost certainly would be secured with collateral, placing those lenders at the top of the creditor's list should a bankruptcy filing eventually occur.

On the other hand, he said, a debt-for-equity arrangement would give bondholders — who hold $26 billion in bonds — greater leverage and a better chance of recovering their investment.

Without debt, Comack said, a leaner WorldCom could emerge from bankruptcy and possibly survive on its own or become a takeover target.

With more than $100 billion in assets reported at the end of March, a WorldCom bankruptcy would be twice as large as Enron's slide into Chapter 11 last fall and four times as big as Global Crossing's in January.

The company's shares have plunged from more than $64 in June 1999 to 21 cents Monday.

[BJungNan]

What the dickens is this headline trying to say?

Reorganization as it appears in the headline is reference to reorganization of the company under the bankruptcy code. It is a term of art.

In short, it means the company will reorganize it's ownership and it debt. In this process, it will put forth a plan for payment of stock/shareholders and other creditors both secured and unsecured and a business plan that will show it can be profitable. The business plan must be approved by the courts and the pay off of debt needs the support of creditors.

As far as I am concerned, the company has always been a scandal. One only need look at its past business practices - slamming customers, double billing, rough treatment of customers - to see they should have gone out of business a long time ago.

MCI World Com...the sooner you die the better.

[BJungNan]

You don't want to be a part of that mess. I've been through it twice and will walk if ever in that situation again. Move on and don't fret over the years or grief you will miss.

[Fixit]

Of course, the first step will be to change its name...

And then seek a bailout from

[John Robinson]

UUNet/WorldCom's billing department was absolutely horrible. They forgot to bill us for 5 months. They finally sorted it out, the 6th month bill, our first from them, was HUGE (no surprise.) We're talking nearly $50,000 they simply did not receive in a timely manner due to lousy billing. As stories go, this was not uncommon for UUNet.

We figured we must have been small fish considering some of their bandwidth options are easily $90,000/mo. (100 Mbits. Before you count in the cost of "real estate" which could easily add tens of thousands more for a large cage.)

[Fury]

UUNet/WorldCom's billing department was absolutely horrible. They forgot to bill us for 5 months. They finally sorted it out, the 6th month bill, our first from them, was HUGE (no surprise.) We're talking nearly $50,000 they simply did not receive in a timely manner due to lousy billing. As stories go, this was not uncommon for UUNet.

We figured we must have been small fish considering some of their bandwidth options are easily $90,000/mo. (100 Mbits. Before you count in the cost of "real estate" which could easily add tens of thousands more for a large cage.)

The State of New York Office of General Services stated it is currently NOT taking steps to cancel it's contract with Worldcom for Aggregated Telecommunications Services. But I also don't know many folks which are signing up with Worldcom either. For more info, see:

http://www.ogs.state.ny.us/purchase/snt/awardnotes/7701011134pm.pdf

Interesting, I had a call yesterday from a firm called "The Neighborhood"? which the cold caller stated was associated with MCI and that they could easily save us "50%" on our Interstate Outbound LD charges. I told him what we pay for Outbound Interstate (day or night) - 2.81 cents per minute - and he said after pause, "Yes, we can beat that". Highly doubtful, but we'll see. They're desperate...

[Fury]

UUNet/WorldCom's billing department was absolutely horrible. They forgot to bill us for 5 months. They finally sorted it out, the 6th month bill, our first from them, was HUGE (no surprise.) We're talking nearly $50,000 they simply did not receive in a timely manner due to lousy billing. As stories go, this was not uncommon for UUNet.

Another point concerning billing. We had Verizon bring in a T3 for a dedicated "broadcast quality" video link. Cost about $1500/month. They forgot to bill us for 7-8 months and when we brought it to their attention, they said "it's on the house". Companies are either flush with cash or going under - we're finding very little in-between...

[Grig]

The Clinton-based long-distance and data services company...

Well, that says it all, doesn't it.

[GovernmentShrinker]

In this case it's both. Obviously insiders initiated the fraud, but missing a $3.8 billion expense fraudulently dropped into the capex line is gross negligence on the part of the auditors. This was not a complex fraud which was carefully disguised by management. It's comparable to management taking a multi-billion dollar chunk of debt and moving it to paid-in-capital -- any first-year accounting student ought to catch it. When a senior accountant for a major firm, heading up an audit of a huge client, misses something of this magnitude and simplicity, it's because s/he is representing having done audit work which s/he simply did not do (and accepting payment for the work not done, to boot). This should be a criminal offense which lands accountants in the slammer.

[GovernmentShrinker]

This might have been a thank you gift for being honest, and bringing to their attention a billing systems problem which was costing them millions from a long list of clients, the rest of whom kept mum about it.

[GovernmentShrinker]

The company is worth a good deal more as a going concern than sold piecemeal, so Chapter 7 is highly unlikely. The stock which the bondholders and lenders receive won't be worthless. The reason the current shareholders' stock is worthless is because their shares are about to be disappeared by the bankruptcy proceeding due to the gazillions of dollars in debt which is senior to them. The new shares given to the current bondholders and lenders won't have the debt ahead of it because the debt will have been cancelled in the exchange for stock.

[Fury]

This might have been a thank you gift for being honest, and bringing to their attention a billing systems problem which was costing them millions from a long list of clients, the rest of whom kept mum about it.

Agreed. I wonder if somehow the services they said forget about paying for were written off as some sort of donation?

[Liz]

.......Clinton-based long-distance and data services company.......... Well, that says it all, doesn't it.

Clinton {{{{blech}}}}}.