WorldCom files for bankruptcy
Posted on 07/22/2002 3:27:03 AM PDT by MeekOneGOP
WorldCom files for bankruptcy
It's largest declaration ever; corporate assets at $107 billion
07/21/2002
Hounded by a deepening accounting scandal and a dwindling pocketbook, WorldCom filed Sunday night for Chapter 11 bankruptcy protection, the largest such filing in history.
Phone and Internet service to the company's more than 20 million customers is expected to continue with few hitches, regulators and executives said.
"This step is the best thing for most people, in our opinion," company spokesman Brad Burns said. "It preserves jobs, it ensures service is not interrupted for our customers, and it protects against a ripple effect throughout the telecom industry."
WorldCom's filing breaks the record set eight months ago by Enron. With assets of more than $107 billion, WorldCom's filing in the U.S. Bankruptcy Court for the Southern District of New York is more than twice as big as Enron's.
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"Our time frame is to be through the bankruptcy process in nine to 12 months," Mr. Burns said.
U.S. Trustee Carolyn S. Schwartz will oversee the bankruptcy.
WorldCom's collapse began in late June, when it revealed that it had inflated earnings by improperly accounting for $3.8 billion in expenses for 15 months beginning in January 2001. The Securities and Exchange Commission has charged the company with civil fraud, and the U.S. House Energy and Commerce Committee is investigating the company's books dating to 1999.
Executive fired, blamed
The company fired its chief financial officer, Scott Sullivan, and has blamed the improprieties on him. The commerce committee has disclosed documents that indicate that former chief executive Bernard J. Ebbers knew and approved of Mr. Sullivan's accounting practices. Mr. Ebbers has denied wrongdoing. Mr. Sullivan has refused to comment. WorldCom, based in Clinton, Miss., also added two board members Sunday Nicholas deB. Katzenbach and Dennis R. Beresford to oversee a company-commissioned investigation led by former SEC official William R. McLucas. Mr. Katzenbach is a former U.S. attorney general, and Mr. Beresford is former chairman of the Financial Accounting Standards Board.
In bankruptcy, WorldCom will offer lenders ownership in the company in exchange for the debt it owes them. WorldCom stockholders will see their percentage stake in the company dwindle to about nothing. WorldCom stock closed Friday at 9 cents a share; in December, it was trading for as much as $15.88 a share.
The bankruptcy filing doesn't include WorldCom's international operations.
WorldCom owes its biggest creditor, J.P. Morgan, $17.2 billion. Next are Mellon Bank, which is owed $6.6 billion, and Citibank, owed $3.3 billion.
It's unclear how many of WorldCom's more than 1,000 creditors will get an ownership stake in the company and on what terms, Mr. Burns said.
"This process happened very quickly, and a pre-packaged scenario wasn't doable in such a short time frame," he said.
Telephone equipment suppliers and the nation's four top local-phone companies SBC Communications, Verizon Communications, BellSouth and Qwest Communications International have severely strained WorldCom in the last few weeks by demanding to be paid more quickly. WorldCom and other long-distance companies pay hundreds of millions of dollars each to local companies that link them to customers.
On Sunday, the local companies' primary lobbying association asked the Federal Communications Commission for the right to demand advance payments from financially troubled companies.
"The FCC should allow supplier carriers to take reasonable measures to assure that they will receive payment for the services they provide and to protect themselves before problems occur," Walter B. McCormick, Jr., president of the United States Telecom Association wrote to FCC Chairman Michael K. Powell.
Mr. Burns said that argument won't fly in court. "Typically, a bankruptcy court would not look too favorably on demands like that," he said.
Experts say it's theoretically possible for the company to re-emerge from bankruptcy as a financially sound entity with little debt. But some analysts expect the company to be acquired in pieces by rivals.
"Other companies have gone into bankruptcy, and some have come out on the other side and gone back to business," said Stanley Kroder, director of the University of Dallas' telecommunications management program. "Other times it's more like a clearance sale. ... I expect a little of both."
One key to a successful restructuring will be how many customers the company can keep.
Brand to 'take a big hit'
"The WorldCom brand is going to take a big hit," said Jeffrey Kagan, an independent telecommunications analyst. "If they do emerge, they will have a big job reinvigorating the brand, since customers don't associate it with good things anymore."
The FCC repeatedly has said it would use its power to keep WorldCom's customers connected. The commission can compel the companies it licenses for phone and data services to continue service for at least 30 days after declaring bankruptcy.
WorldCom's substantial telecommunications assets will play prominently in any restructuring or merger. The company carries an estimated 50 percent of the world's Internet traffic and is the nation's second-biggest long-distance company.
IDT Corp., a telecommunications company based in Newark, N.J., has offered to buy large chunks of WorldCom for $5.1 billion, but its bid has been rebuffed. Mr. Burns said the company is not actively seeking a merger, but does want to sell its wireless resale business and networks in Latin America.
MCI, which WorldCom acquired in 1998, has deep roots in Dallas and played a prominent part in AT&T's 1984 breakup. WorldCom still uses the MCI brand for its consumer long-distance and local phone service.
The company employs about 4,300 workers in the Dallas area and more than 60,000 worldwide. In late June, the company dismissed 17,000 workers, but analyst expect the cuts to go deeper.
"The real earthquake will be on Main Street, not Wall Street," Mr. Kagan said. "The people who will be hurt are the vendors and the stockholders. ... Workers can expect more rounds of job cuts as the company struggles to reinvent itself."
E-mail vbajaj@dallasnews.com
WorldCom's collapse began in late June, when it revealed that it had inflated earnings by improperly accounting for $3.8 billion in expenses for 15 months beginning in January 2001. The Securities and Exchange Commission has charged the company with civil fraud, and the U.S. House Energy and Commerce Committee is investigating the company's books dating to 1999.
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| July 2 | Price hit new 52-week low ($0.05) | ||
| Location | |||
| 500 Clinton Center Drive Clinton, MS 39056 |
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| Phone: (601) 460-5600 Fax: (601) 974-8350 |
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| Employees (last reported count): 61,800 | |||
Yeah.. how dare the Government try to act responsibly.. how dare them insist on honestly, truthfullness, and integrity!!!
How dare them not put the greedy people first, who created this mess. How dare them!!!!
Sheesh!!
Against the GOP? Anyone with a brain the size of a mouse, would know this started under the Clintoon admins watch. Even candidate Bush warned of this. I HOPE Americans are more savvy than this.. but we'll see.
I agree that the fraudulent practices are at fault, too, but there are a lot of structural problems as well.
Courtesy of this week's Economist:
Exaggerated figures for Internet traffic inflated the telecoms bubble
Well, the $100B in assets is very misleading.
World Com lists current assets at $9B, and Plant and equipment at $39B, including the bogus $4B in capital expenditures. The rest of the "assets" are intangible and goodwill, which, with all the "good publicity" of how well the brands are doing, became worth next to zero once they took the tube.
So, after writing down the receivable from Ebbers of about $400 million, secured by stock worth $0.16 cents, and extracting the bogus capital expenditures, hard assets of $43B, compared to hard debt of about $40B, leaves slim pickings for the shareholders.
50 B of those assets are goodwill which is inherently worthless, now back out the 4 B that was called capitalized assets that are really expenses. This brings it to 46 B in assets and 40 B in Debt. If the 46 B of assets on the books can be sold at say 90% their book value. The firm is worth nothing.
"These many." -- John Sidgmore, the chief executive of WorldCom, in response to the question, "How many millions did you personally pocket before announcing the bankrupty of your company?"
It sure did. The only way MCI (and Worldcom) could "build" their networks after given the green light from the government to compete in the regulated long distance market was to borrow billions of dollars to buy right-of-way, switches, outside plant in the form of microwave towers (Microwave Communications Incorporated = MCI).
The phone companies and AT&T were saddled with 30 year amortization schedules. Not a good plan when you have to borrow billions to build the network.
Yes, you can blame the government for screwing up a good thing. It took longer than I expected, but it finally happened. The best solution left now is to divide the Worldcom/MCI spoils among IDT, Sprint, AT&T, and the Baby Bells. Name one industry saddled with government oversight that has ever succeeded.
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Telephone and Internet service to the company's more than 20 million retail and phone-company customers should not be affected. In bankruptcy, the company is allowed to keep operating its network and servicing customers.