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WorldCom reorganization may conclude by 1st quarter

| Tuesday, July 23, 2002

NEW YORK — WorldCom Inc. Chief Executive Officer John Sidgmore said the second-biggest U.S. long-distance telephone company will emerge from bankruptcy as early as January after cutting 75 percent of its more than $30 billion in debt.

Breaking apart WorldCom, owner of the MCI network, "is not going to help," Sidgmore said at a press conference in New York. Sunday, WorldCom filed the largest bankruptcy in U.S. history. The company Monday won a judge's approval for $2 billion in new bank loans. The court also approved an independent examiner.

The reorganization of WorldCom, which carries half of all Internet traffic, "is not going to be a liquidation," he said. Sidgmore is trying to get loans and sell assets to raise money and keep the company running. Assets sales may not generate much cash because of a network supply glut, and creditors are likely to end up owning most of the restructured company, investors said.

"This company is going to be very difficult to resurrect," said Ed Paik, a portfolio manager at the Liberty Utility Fund, which owned 4.5 million WorldCom shares as of March. "When you're in bankruptcy court, creditors will dictate how the company will be restructured."

WorldCom, under scrutiny by the U.S. Securities and Exchange Commission and congressional committees for hiding $3.85 billion in expenses, listed assets of $107 billion in its Chapter 11 filing.

The company plans to sell assets apart from the MCI long- distance unit and UUNet data network. Some holdings, which include stakes in Latin American carriers and a European data network, will be tough to sell because of an abundance of communications businesses on the market, said Eric Tutterow, an analyst with KDP Investment Advisors.

Data-network operator Global Crossing Ltd. and business local- phone provider XO Communications Inc. this year joined others in filing for bankruptcy protection after spending billions building networks that didn't draw enough users.

U.S. Bankruptcy Judge Arthur J. Gonzalez in Manhattan approved a request by the U.S. trustee overseeing WorldCom's bankruptcy case for an independent examiner to investigate the events that led to the company's downfall. U.S. Trustee Carolyn Schwartz, a Justice Department official, said in court papers that WorldCom agreed to the appointment.

Gonzalez said it was "appropriate in this case to move quickly with the examiner." He asked the U.S. trustee to report back by Aug. 1 if an examiner hasn't been selected.

Separately, U.S. District Judge Jed Rakoff delayed the conversion of MCI tracking shares into WorldCom stock until tomorrow at the SEC's request, WorldCom attorney Joe Allerhand told Gonzalez. The agency could seek to delay the conversion further, he said.

The company will have access to $750 million of the $2 billion in new loans immediately, after Gonzalez's ruling today. A lawyer for WorldCom said the company is spending $200 million a week and had $200 million in cash as of Friday.

WorldCom "would not be able to continue to operate" without the so-called debtor in possession loans, said Marcia Goldstein, the company's attorney.

WorldCom's bankruptcy filing came four weeks after the Clinton, Mississippi-based company said it hid costs over five quarters. Sidgmore said he has "no idea" of the depth of the accounting issues and said bankruptcy won't dismantle the company.

"The debt can be reorganized to make it possible for WorldCom to come through," said Carl Lawrence, managing director of Warwick Capital Management, which owns 20,000 WorldCom shares.

WorldCom pays about $2 billion a year in interest on the $30 billion in debt, Sidgmore said. "Just the interest payments alone are going to be a huge reduction," he said.

The company's 7.5 percent coupon notes maturing in 2011 were quoted at about 13.5 cents on the dollar. The yield on the debt was 53 percent. Bondholders may get 20 cents on the dollar in stock of a reorganized company, KDP's Tutterow said.

Sidgmore hopes the company's $2 billion in debtor financing will last a year. He is interviewing candidates for a chief restructuring officer position.

Shares of WorldCom rose 5 cents to 14 cents. The stock had plunged about 90 percent since the accounting disclosure on June 25.

WorldCom will operate with the "highest" of ethics and the bankruptcy filing was the "right thing" for the company's future, Sidgmore said. It will continue to pay employees and suppliers.

Sidgmore said the company hasn't lost "substantial customers." He wasn't more specific.

WorldCom must apply with the FCC before terminating service and provide customers with at least 31 days notice, FCC Chairman Michael Powell said in a letter to Sidgmore. The FCC can extend the notice WorldCom must give to customers when it determines more time is warranted, Powell said.

Compensation for executives will be decided by the bankruptcy judge, Sidgmore said. WorldCom has suspended executive bonuses. Sidgmore's compensation now consists only of his salary, he said.

The company doesn't plan to fire more workers, Sidgmore said. It has already announced plans to shed 17,000 employees.

Sidgmore said he didn't know how the bankruptcy filing affects a loan to former CEO Bernard Ebbers, who owes the company about $400 million.

He also said he doubts the company will release second- quarter results, which were expected later this week.

IDT Corp., a telecommunications and Internet company, has offered to pay $5 billion for WorldCom's MCI long-distance telephone unit, the MFS local-phone network and Brooks Fiber Inc.

Sidgmore reached an agreement Thursday with lenders that bars the company from selling some assets for 80 days and that lets WorldCom use $2.5 billion in bank loans. A group of 25 lenders has accused the company of misrepresenting itself when the company borrowed the money six weeks before disclosing that it would have to restate results.

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