Former WorldCom Chief Executive Officer Bernie Ebbers has given a massive Canadian cattle ranch and resort to the Clinton-based telecommunications giant in an attempt to pay back part of the $408 million he owes the firm.
The Douglas Lake Ranch a working cattle ranch that includes a fly-fishing resort, recreation facilities and timber operations was one of several properties listed as collateral for $408 million in loans WorldCom granted Ebbers in 2001 and 2002.
At 500,000 acres, the ranch in British Columbia is slightly larger than Madison County.
David Kaufman, Ebbers’ Jackson-based attorney, said the company and its former CEO have been in negotiations since April when the firm’s board of directors ousted Ebbers.
Last year, Ebbers turned over Intermarine Savannah, a yacht-producing company, to WorldCom. WorldCom last week asked for permission in Bankruptcy Court to sell the shipbuilder for $9.8 million.
WorldCom officials said Monday that Hilco Realty, the same company handling the sales of several office properties for the firm, will handle the sale of the ranch.
Kaufman said the sales are “all part of the ongoing effort to cooperate and dispose of these assets.”
He added that Ebbers and WorldCom have not established how much of the $408 million will be forgiven in exchange for the yacht company and the ranch. Negotiations over that point and Ebbers’ remaining collateral assets continue, Kaufman said.
WorldCom made the loans to Ebbers to stop him from selling his stock in the company. During the late ’90s, Ebbers spent millions on the stocks of other companies and on other investments. He borrowed money from several banks to make those investments and offered his WorldCom stock as collateral for those bank loans.
But as WorldCom’s stock plummeted, Ebbers’ shares were no longer adequate collateral. The banks asked Ebbers to sell his shares, a move the company’s board of directors feared could have further depressed WorldCom’s share price.
In an effort to protect the stock price, the board offered Ebbers the loans, allowing him to settle his accounts with the lenders, without selling his shares in the company.
Under a severance agreement reached when Ebbers left WorldCom, he wasn’t required to begin repaying the loans for one year.
Ebbers’ first payment of $25 million is not due until April. He must pay $25 million in 2004. The payments then climb to $75 million in 2005, $100 million in 2006 and $183 million in 2007.
That severance package also called for Ebbers to receive $1.5 million per year in salary, but the Bankruptcy Court cancelled those salary payments last year after WorldCom filed for Chapter 11 protection from its creditors.
The $104 billion bankruptcy filing, the largest in world history, followed revelations that WorldCom had fraudulently inflated its earnings by $3.85 billion in 2001 and 2002 to look profitable. That figure has since grown to $9 billion in fraud stretching as far back as 1999.
Kaufman said the ranch should sell quickly. “There are some substantial offers on the table,” he said.
Last year, the owner of land adjoining Ebbers’ property offered $48 million ($75 million Canadian) for the property, considerably less than the $64 million ($100 million Canadian) Ebbers paid for it.
So far, WorldCom has not had much luck selling Ebbers’ former assets. It expects the shipyard to clear $7 million after it makes repairs and pays off investors with minority interests in the company.
That is considerably less than the $14.4 million Ebbers paid for the property.
The former CEO’s largest asset 460,000 acres of timberland in Mississippi, Louisiana and Alabama is still in Ebbers hands, Kaufman said. Turning over the Joshua Timberlands to WorldCom will require more talks between Ebbers and the company, he said.
“It’s a heck of a lot more complicated than something like Douglas Lake because of the multiple levels of financing,” Kaufman said.
Ebbers owns Joshua through a complex set of arrangements with the Travellers Insurance group and other investors.
Ebbers and the other investors paid $400 million for the timberland in 1999, but experts have since said it is now worth closer to $300 million.
Also listed as collateral by Ebbers is his partial ownership of Columbus Lumber, a saw mill in Columbus.
Ebbers also has assets outside of the items listed in his loan agreements with WorldCom such as shares of stock in various high-tech and telecommunications companies, a Louisiana soybean farm and a portion of KLLM, a Richland-based refrigerated trucking company.