Long-Distance Giant WorldCom Files For Biggest Bankruptcy In U.S. HistoryJul 22, 2002 | AP
WorldCom Inc. became the latest corporate giant to collapse amid accounting scandals after filing the largest bankruptcy in U.S. history, but the action isn't expected to affect the company's long-distance and Internet services.
The telecommunications company filed for protection under the Chapter 11 bankruptcy laws Sunday night, nearly four weeks after it disclosed hiding almost dlrs 4 billion in expenses through deceptive accounting. With dlrs 107 billion in assets reported in its filing, WorldCom's bankruptcy was nearly twice as large as Enron Corp.'s record-setting filing last year.
The bankruptcy, the latest in a stunning series of corporate collapses, had been expected.
WorldCom CEO John Sidgmore said the bankruptcy should have no effect on the company's customers.
"At the end of the day, this really will be business as usual," he said. "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."
Michael K. Powell. chairman of the Federal Communications Commission, said he believed the bankruptcy wouldn't lead to "an immediate disruption of service to consumers or threaten the operation of WorldCom's Internet backbone facilities."
But the bankruptcy threatens to scare off anxious customers who have been approaching competitors like Sprint, AT&T and SBC Communications since news of the accounting scandal broke.
Sidgmore told The Associated Press that his company had negotiated approximately dlrs 2 billion in financing while it reorganizes. The company, which is hiring a restructuring team to ease the process, hopes to emerge from bankruptcy in 12 months.
Drake Johnstone, a telecom analyst with Davenport & Co. in Richmond, Virginia, said the hope among the banks providing the new money is that WorldCom will be able to restructure its debt and emerge as a viable enterprise.
"My concern with that scenario is it's unclear what other surprises WorldCom has in store," Johnstone said. "The (internal) audit is not complete. At this point we don't know how much revenue or cash flow the company has."
The deceptive accounting, investigations and collapse of WorldCom follow costly scandals at other big-name companies, including Adelphia Communications, Global Crossing and Enron, all of which have filed for bankruptcy protection as they attempt to pay creditors and reorganize their businesses.
Sidgmore said WorldCom is cooperating with investigators to "help them find the bad guys, punish the bad guys and leave the company alone."
WorldCom's filing detailed liabilities totaling more than dlrs 65 billion.
Clinton, Mississippi-based WorldCom admitted June 25 that it falsely accounted for dlrs 3.85 billion in expenses, which had the effect of inflating profits. That same day, it fired chief financial officer Scott Sullivan, who was subsequently accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.
WorldCom also announced in June that it would lay off 17,000 workers, or 20 percent of its global work force.
In an interview on NBC TV's "Today" show, Sidgmore said the company had no plans to lay off more staff. He also acknowledged that it sounded "outrageous" that senior managers such as former chief executive Bernie Ebbers claimed to have no knowledge of the accounting improprieties.
Even before the hidden expenses were exposed, WorldCom was engulfed in financial turmoil.
WorldCom's stock price traded as high as dlrs 64.50 in June 1999. However, shares of WorldCom and other telecommunications companies have slid ever since as the dot-com bubble burst and other market forces caused an industrywide implosion.
The high-speed Internet infrastructure that telecom companies had been building throughout the late 1990s lost much of its value very quickly once it became apparent there was little consumer demand for the services being offered over this so-called broadband network.
The long-distance sector, meanwhile, has been pounded by falling rates and growing competition from local telepone companies, who have received federal permission to hone in on the market. Long-distance carriers such as WorldCom's MCI are also losing business as customers grow fond of e-mail and cell phones.
In March, the Securities and Exchange Commission launched a wide-ranging investigation into WorldCom that included a review of dlrs 408 million in loans made to former chief executive Bernie Ebbers. WorldCom stockholders sued the company's board over those loans.
A month later, Ebbers resigned amid mounting concerns about the loans and the purported growth and financial health of the company he founded in 1983. He was replaced by Sidgmore, whose plan to restructure the company by cutting costs and assets will now take place through the bankruptcy process.
The SEC investigation also focused on disputed customer bills, sales commissions and the value of outstanding contracts between WorldCom and customers no longer deemed financially viable.
As a result, the major credit agencies eventually cut WorldCom's long-term debt rating to junk status.
In June, the SEC filed fraud charges against WorldCom. Agency chairman Harvey Pitt said the action was taken to prevent the company from destroying documents or making payouts to WorldCom executives past or present while the SEC continues investigating.
WorldCom, which has dlrs 30 billion in debt, has been in talks to raise dlrs 3 billion in financing. Last week, the company reached an agreement with creditors that prevents the company from selling any of its subsidiaries until October.
WorldCom grew from a small long-distance company into a telecommunications force through more than 60 acquisitions over 15 years. Its MCI arm is the nation's second-largest consumer long-distance provider after AT&T Corp.
The company's expansion ceased abruptly in 2000 when U.S. and European regulators blocked WorldCom's proposed dlrs 129 billion merger with Sprint Corp. Regulators contended that the merger would have left millions of Americans paying more for Internet and long-distance services.