WorldCom Inc. will conduct business as usual while it develops a reorganization plan under Chapter 11 of the U.S. Bankruptcy Code, the company said in a statement Monday morning.
The company filed for court protection Sunday evening in the U.S. Bankruptcy Court for the Southern District of New York. That filing covers WorldCom and substantially all of its active U.S. subsidiaries, but not its non-U.S.subsidiaries, according to the statement.
WorldCom’s is the largest bankruptcy filing in U.S. corporate history, the Wall Street Journal said in its online edition Sunday night, with the company listing assets of over US$100 billion, and having more than 1,000 creditors.
The company has debt estimated at $32.8 billion, several thousand corporate customers, serves around 20 million consumers and runs the world’s biggest Internet network. Subsidiaries include Internet infrastructure company UUNet Technologies Inc. and telecommunications carrier MCI Communications Corp.
Chapter 11 provides a financially beleaguered company a method to keep operating its business under protection from its creditors while developing a plan for resolving its financial problems.
WorldCom has obtained an agreement to arrange up to $2 billion in Debtor-in-Possession (DIP) financing, of which $750 million has already been committed by several banks. This facility, once approved by the Bankruptcy Court, will allow the company to operate its business normally while it focuses on its new strategic plan, restructures its finances, reduces its debt burden and strengthens its balance sheet, according to the statement.
In the statement, John Sidgmore, President and Chief Executive Officer of WorldCom, said that the company will use the time under reorganization to regain its financial health and focus, intending to emerge from Chapter 11 as quickly as possible and with its competitive spirit intact.
WorldCom will use the court’s protection to restructure its debt, sell off inessential assets and focus on key businesses so it can emerge from bankruptcy protection as a viable company, the Wall Street Journal said.
The bankruptcy filing was widely expected in the wake of accounting scandals that have hit the company, and the precipitous fall in telecommunications company valuations.
WorldCom was valued at around $120 billion at its peak in the summer of 1999. Late last week, WorldCom’s market capitalization had fallen to $280 million, the Journal reported.
While a Chapter 11 filing enables WorldCom to keep its creditors at bay, it does not wipe out the company’s other difficulties, which include:
— the discovery in late June of accounting irregularities totalling an estimated $3.85 billion.
— a lawsuit brought by the U.S. Securities and Exchange Commission (SEC), related to the accounting irregularities, charging the company with fraud and asking a court to block the destruction of documents by WorldCom.
— an investigation into the irregularities by the U.S. House of Representatives’ Energy and Commerce Committee
— a lawsuit which the company has filed against former Chief Financial Officer Scott Sullivan, seeking to recover a US$10 million bonus awarded to Sullivan in 2000.
— further tarnishing of the company’s reputation as Sullivan and former CEO Bernie Ebbers refused to answer questions put to them by a U.S. House of Representatives committee by pleading the Fifth Amendment to the U.S. Constitution, which allows citizens to decide not to answer questions that may incriminate them during an investigation.
— the discovery that the accounting irregularities at WorldCom began more than two years ago and showed a history of lies and financial wrongdoing by executives trying to reach profit forecasts.
— suggestions from U.S. Representatives Billy Tauzin and Michael Oxley that company officials convicted of serious fraud charges could be sentenced to jail terms.
— an attempt by IDT Corp. to buy up some of WorldCom’s core assets such as its local phone offerings for businesses and MCI dialup services.
— completing a restructuring which will see 17,000 employees leave the company.