WorldCom files reorganization plan that sheds debt, moves headquarters
Tuesday, April 15th 2003, 12:00 am
By: News On 6
CLINTON, Miss. (AP) _ WorldCom Inc., trying to escape both the largest-ever U.S. bankruptcy and biggest accounting fraud, unveiled a reorganization plan Monday that erases most of its debt, renames the company and moves its headquarters.
WorldCom, whose plan gives creditors control of the company, said it will take the name of its long-distance unit MCI, and shift its headquarters to MCI's base in the Washington suburb of Ashburn, Va., from Clinton, Miss., where it was founded by former CEO Bernard Ebbers.
MCI is still the nation's second largest long distance carrier.
WorldCom would shed about $36 billion of its $41 billion in debt. The reorganization plan has the backing of 90 percent of its creditors _ which should ensure that the plan wins court approval.
Rivals like AT&T Corp. and SBC Communications Inc. have balked at allowing WorldCom to shed its debts, as they would face a leaner competitor eager to aggressively recoup lost marketshare. WorldCom has already used the bankruptcy to shed or reduce the size of work contracts and to write down $10 billion in assets.
``Going through bankruptcy suddenly gives WorldCom a cost advantage _ they come out of this much better than they went into it,'' said Frank Dzubeck, a telecom consultant and president of Communications Network Architects in Washington, D.C.
Under the plan, WorldCom would have debts of between $3.5 billion and $4.5 billion and available cash of about $3 billion. Its stocks and bonds would have a market value of about $12 billion _ a far cry from the company that claimed $104 billion in assets a year ago before details of its $11 billion accounting fraud began to emerge.
On Monday, WorldCom said the total value of its current assets, including cash and infrastructure, is approximately $19.5 billion.
WorldCom bondholders would get 36 cents of new debt and equity for each dollar they are owed, MCI's bondholders would get about 80 cents and Intermedia bondholders would get 94 cents.
``The big uncertainty is just what that equity is really worth,'' said Jim Owers, a finance professor at Georgia State University and an expert on corporate restructuring. ``The bondholders are taking an option on the new company being successful and, if it's not, the option could become worthless. On the upside, it could become very valuable.''
WorldCom could emerge from Chapter 11 bankruptcy as early as September.
In the meantime, Worldcom can't legally change its name. However, WorldCom's Web site as of Monday redirects visitors to MCI.com., and company news releases about the reorganization plan refer to Michael Capellas as chairman and CEO of MCI, not WorldCom.
Capellas addressed WorldCom's 55,000 employees via Webcast from Ashburn Monday. He introduced WorldCom's new chief financial officer _ Robert Blakely, a former CFO of Lyondell Chemical Co. and Tenneco Inc.
Capellas also tried both to make employees feel good about the company's progress since the July bankruptcy filing and to warn them that more needs to be done.
``It's the end of our 100-day plan but the first day of our three year plan,'' said Capellas, a former chief executive of Compaq Computer Corp. who took the helm at WorldCom in December. ``We have to ensure we maintain profitability.''
WorldCom's competitors _ which have snared thousands of former WorldCom customers in the last year _ have warned that a less-debt ridden WorldCom would launch a price war that could cripple an already battered industry.
But analysts generally expect WorldCom instead will concentrate on cutting costs and building revenue.
And WorldCom could leave bankruptcy with some unique advantages to help its journey toward profitability, said Maribel Dolinev, an analyst with Forrester Research Inc.
Its MCI Neighborhood plan, bundling local and long distance services, is still the market leader for such plans. WorldCom still have a nationwide network without the $41 billion in debt it had accumulated to pay for it. And it has retained a large percentage of its biggest corporate customers, Dolinev said.
``Where they've lost is the small- to medium-sized businesses,'' she said.