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Tuesday, July 23, 2002

Under the terms of the request, the independent examiner would have subpoena powers in order to investigate WorldCom's past and current activities.

U.S. Attorney General John Ashcroft said that such a measure would "provide transparency to the process and enhance accountability." This, the Justice Department chief said, "should increase public confidence in the conduct of the case and help preserve value and protect the creditors and shareholders, including small creditors and those whose pension funds are invested in WorldCom."

WorldCom head John Sidgmore said at a news conference Monday that the company would emerge successfully from its Chapter 11 reorganization and continue as a player in the telecommunications industry.

'Intact'

"Our plan is going to be essentially to keep company intact. It doesn't mean we won't have some business restructured, or that we won't get out of some businesses. But I suspect our plan will include keeping core centerpieces intact," he said.

"The reorganization here is not going to be where you jump in and sell all the assets, in my opinion. The value in WorldCom is not in the switches and pipes we have underground and the hard assets. I think the value of WorldCom is the 20 million customers, the brands, the customer relationships and the product set," the chief executive officer added.

He listed the company's MCI long-distance service along with its UUNet unit's data networks as core assets that WorldCom did not intend to sell.

Federal Communications Commission head Michael Powell said late Sunday that though "deeply concerned" by the bankruptcy filing, the agency did not believe WorldCom's bankrupt state would lead to an immediate disruption of service to consumers or threaten the operation of WorldCom's Internet backbone. "It is my understanding that WorldCom has obtained funding necessary to continue operations" during ongoing bankruptcy proceedings, he said.

According to court papers filed Monday, WorldCom will ask a bankruptcy court to approve $750 million in interim debtor-in-possession financing from a consortium of banks to continue operating.

This financing is part of an overall proposed $2 billion agreement meant to prop up the ailing telecom company while it reorganizes.

Sidgmore said Monday that he did not expect the company to undergo a breakup as part of bankruptcy proceedings.

On Sunday, the Clinton, Miss., company filed the largest U.S. bankruptcy on record after the long-distance telephone and data services giant came under pressure from a $3.85 billion accounting scandal and a mountain of junk-rated debt.

60,000 Employees

WorldCom, which has 60,000 employees and operations in 65 countries, said it expected to emerge from Chapter 11 in about nine to 12 months. The bankruptcy does not include its international operations.

The company has more than 20 million customers and transmits half the world's Internet traffic. It listed $107 billion in assets and $41 billion in debt.

WorldCom last month disclosed it improperly recorded $3.85 billion in expenses and fired its former chief financial officer, Scott Sullivan, whom it alleged orchestrated the accounting debacle.

Former Chief Executive Bernie Ebbers resigned under pressure in April. WorldCom was charged with fraud by the Securities and Exchange Commission and faces lawsuits from several state pension funds, which alleged it provided misleading information during a 2001 bond offering. A proposed interim order said the $750 million of interim financing under the debtor-in-possession credit facility would have a maximum of $250 million for letters of credit.

The company must appear at the U.S. Bankruptcy Court for the Southern District of New York to seek approval for the DIP funding. Meanwhile, Sidgmore said he thought it was "highly unlikely" that a bankruptcy judge would decide to break up the company.

In an interview on NBC's "Today" program, Sidgmore said "the reason is that the value in WorldCom is not in the individual assets. It's in the enterprise."

Sidgmore said WorldCom has "no plans today to lay off more people" and there shouldn't be any significant difference in service for WorldCom customers.

Answering questions, Sidgmore said that "in hindsight," the WorldCom board "certainly" wishes it hadn't made a $408 million loan to Ebbers. Sidgmore said he was "a little bit surprised" when Ebbers invoked his Fifth Amendment rights before a congressional committee.

Asked if certain WorldCom executives knew what was going on, Sidgmore said former chief financial officer Sullivan admitted that he had ordered what had taken place, but Sidgmore said the courts would have to decide if Sullivan was criminally responsible.

Sidgmore said he believed the former comptroller knew what was going on, but he had no way of knowing if Ebbers did.

Sidgmore said he "had absolutely no idea what was going on and didn't believe the other board members did either."

Sidgmore said he was also chairman and chief executive of "a very small software company in Virginia" but hadn't spent a day there since he took over WorldCom and had offered to step down if that was important to the WorldCom board.

Asked about auditing, Sidgmore said, "I think the world has gotten so complex for large companies" that "the best thing to do is to have auditors check the work of other auditors."

In a bankruptcy filing, the court can appoint a trustee to take over the company while options for restructuring, sale or breakup are contemplated by creditors and executives. The company and its creditors, either jointly or separately, present plans to the court.

Banks that provide cash to keep the company going in the meantime, known as "debtors in possession," have first claim on the proceeds of any sale. Next come the "critical suppliers," such as the Baby Bells who sell the services WorldCom needs to provide for its customers.

Most of WorldCom's debt is owed to bondholders, who are behind critical suppliers in the queue for proceeds. Right at the back come the company's shareholders, who are unlikely to get anything.

Double Enron

The bankruptcy is nearly twice the size of Enron's, until now the largest in U.S. history.

The company also announced the appointment of two new board members: Nicholas Katzenbach and Dennis R. Beresford. Katzenbach is a lawyer who was attorney general under Lyndon Johnson. Beresford is professor of accounting at Terry College in Georgia and was chairman of the Financial Accounting Standards Board, 1987-97.

Copyright 2002 by United Press International.

All rights reserved.

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