WorldCom Files Record Chapter 11
Bankruptcy
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| Jul 22, 2002 (The Boston Globe - Knight Ridder/Tribune Business News via COMTEX) -- Embattled telecommunications firm WorldCom Inc. filed for Chapter 11 bankruptcy protection yesterday, the largest such filing in US history and further evidence of the stunning collapse of the past decade's economic boom. The company filed in New York under Chapter 11, which is designed to give destitute businesses a chance to keep operating while their operations are reorganized. The filing will enable WorldCom to receive $2 billion in bank financing to tide the company over during the reorganization. "The first priority was to stabilize the company financially," WorldCom chief executive John Sidgmore told the Associated Press. "We don't think that there will be any significant impact on the employees and vendors, for that matter, and we should have plenty of cash to make it." Sidgmore said the company will look at selling some of its noncore assets, and that "potentially includes some of our Latin American facilities" and wireless resale business. "Certainly not UUNet or MCI or any of the core assets." WorldCom, through its MCI subsidiary, is the nation's second-largest provider of long-distance telephone service; UUNet is a major operator of Internet "backbones," the big fiber-optic lines that carry large amounts of Internet traffic. WorldCom is also a major provider of telecommunications services to the US government. With assets of more than $104 billion, WorldCom dwarfs Enron Corp., which claimed $50 billion in assets when it filed for bankruptcy last December. Despite its vast assets, WorldCom is more than $30 billion in debt, because of rapid expansion during the past decade. That debt load became much harder to bear over the past year, as the economic downturn eroded revenues. Then in March, the US Securities and Exchange Commission began investigating the company, including its former chief executive, Bernie Ebbers, who had borrowed $408 million in personal loans from the firm. But the fatal shock came last month, when WorldCom admitted to having used misleading accounting tricks that reduced its expenses in 2001 and 2001 by $3.85 billion, while inflating its profits. The company fired its chief financial officer, Scott Sullivan, who has since been accused by WorldCom's auditing firm, Arthur Andersen, of withholding information about WorldCom's true financial condition. The SEC has filed fraud charges against the company in an effort to prevent it from destroying documents related to its accounting policies. The restatement of earnings caused shares of WorldCom to fall to new lows. The stock closed at nine cents on Friday, compared to $64.50 at its height in mid-1999. Last Monday, the company failed to make a $74 million interest payment on its debt, and the Fitch Ratings service cut its credit rating 10 notches below investment grade. Also driving the bankruptcy decision is a lawsuit filed earlier this month by an international consortium of banks that lent WorldCom $2.5 billion six weeks before the company announced the accounting irregularities. As part of its restructuring strategy, WorldCom is moving to restore confidence in its accounting procedures. The company yesterday announced the election of two members to its board: former US Attorney General Nicholas deB. Katzenbach and Dennis Beresford, the former chairman of the Financial Accounting Standards Board. Katzenbach and Beresford will be part of an investigative committee that will review accounting practices at the company. Berge Ayvazian, vice chairman of the Boston research firm the Yankee Group, said that although the bankruptcy was widely expected, it further highlights the weakness of the entire telecommunications industry. "I think it'll definitely cause a further downward spiral" in the stocks of other communications companies, Ayvazian said. "The stock prices of all the telecom companies have been damaged ... and there are still questions about whether there are irregularities in other companies." By Hiawatha Bray |