U.S. carrier WorldCom Inc. is planning to file for bankruptcy protection in the coming days, according to reports in the online editions of The Wall Street Journal and The New York Times on Friday.
Though not unexpected, the filing would mark a new chapter in the fall of former stock market darling WorldCom. Chief Executive John Sidgmore said earlier this month that a bankruptcy filing could come in a matter of weeks.
Clinton, Mississippi, WorldCom has arranged for as much as US$2.5 billion in so called debtor-in-possession financing to continue operating after a bankruptcy filing. Three financial institutions, J.P. Morgan Chase & Co., Citigroup Inc. and GE Capital, part of General Electric Co., are providing the financing, according to the reports.
WorldCom’s businesses outside the U.S. are not expected to file for bankruptcy protection, according to the report in The Wall Street Journal.
A WorldCom spokeswoman in the U.K. declined to comment on the reports.
Companies that file for protection from creditors under Chapter 11 of U.S. bankruptcy law can continue to operate while restructuring its finances. The bankruptcy filing should thus not have an immediate effect on WorldCom’s customers.
On Thursday, WorldCom agreed to freeze certain assets in a deal with 25 banks that sued the company before the U.S. District Court for the Southern District of New York. The banks sued WorldCom in an attempt to recover a $2.65 billion unsecured loan they provided in May, but will now halt their legal efforts, according to the article in The New York Times.
Accounting irregularities uncovered at WorldCom forced the company to restate its past earnings by almost $4 billion.
WorldCom is the second-largest long-distance phone company in the U.S. and one of the world’s largest Internet backbone operators. The company’s bankruptcy would surpass that of Enron Corp. as the largest in U.S. corporate history in terms of assets, according to the reports.