WorldCom
Files for Bankruptcy in Largest U.S. Corporate Failure
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WorldCom’s
headquarters in Clinton, Mississippi
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NEW
YORK, July 22 (IslamOnline & News Agencies) - Telecommunications
giant WorldCom - faced with a mountain of debt and a growing scandal
over accounting irregularities that caused the company’s stock to
collapse - filed Sunday, July 21, for bankruptcy protection in the
largest corporate failure in U.S. history.
The
Clinton, Mississippi-based company filed in U.S. District Court for
the southern district of New York for protection under Chapter 11 of
the bankruptcy code, which allows it to continue operating while it
works out a plan to pay its debts, according to court records, Agence
France-Presse (AFP) reported.
“Chapter
11 enables us to create the greatest possible value for our creditors,
preserve jobs for our employees, continue to deliver top-quality
service to our customers and maintain our role in America’s national
security,” said John Sidgmore, president and chief executive officer
of WorldCom, in a statement late Sunday.
“We
will use this time under reorganization to regain our financial health
and focus, while operating with the highest integrity. We will emerge
from Chapter 11 as quickly as possible and with our competitive spirit
intact,” Sidgmore said.
Sidgmore
has planned a press conference Monday at 9 am (1300 GMT) at a New York
hotel to discuss the bankruptcy filing.
WorldCom,
the nation’s second-largest long-distance telephone service
provider, admitted in late June it had improperly accounted for 3.9
billion dollars in operating expenses over more than a year to hide
losses.
The
company will be able to maintain service to its 20 million residential
and business customers, thanks to a new $2 billion line of credit it
effectively secured with the bankruptcy filing, U.S. daily newspaper,
the Washington Post reported.
The
company has enough money to operate and maintain the payroll for its
60,000 workers for at least a year, according to Sidgmore.
The
telecommunications giant was able to get the $2 billion credit line
from a new group of lenders that includes J.P. Morgan Chase & Co.,
Citigroup Inc. and General Electric Capital Corp. by agreeing to file
for bankruptcy protection, according to sources. The lenders will be
first in line among the company’s creditors to be repaid.
WorldCom
secured the line of credit, which must be approved by the bankruptcy
court, with its accounts receivable - essentially payments owed by its
customers, the Washington Post said.
After
a round of 17,000 layoffs last month, the company has no current plans
to trim its workforce further. WorldCom, one of the largest employers
in the Washington area, currently has about 6,000 local employees. It
dismissed 2,000 local employees in last month’s layoffs.
The
filing, which followed a meeting of company directors, would far
eclipse the December 2001 collapse of energy trading giant Enron.
In
the bankruptcy petition, WorldCom listed assets of 107 billion dollars
as of March 31, against debts of 41 billion dollars.
By
comparison, Enron listed 63.4 billion dollars in assets when it sought
bankruptcy protection in December, sinking in a morass of accounting
scandals.
Proper
accounting would have forced WorldCom to report a net loss in 2001 and
for the first quarter of 2002, the company admitted in late June.
Instead,
WorldCom claimed 1.4 billion dollars in profit in 2001 and 130 million
dollars in profit for the first quarter of 2002. Final numbers for
those five quarters are awaiting another audit.
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WorldCom
President and Chief Executive Officer John Sidgmore
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The
company intends to restructure its debt, sell off non-core assets and
focus on key businesses, U.S. newspaper, the Wall Street Journal
reported in its online edition.
Sidgmore
warned earlier that his company’s survival is in the public interest
and a matter of “national security,” noting that his company
“plays an important role in America’s telecommunications
infrastructure,” with some 20 million telephone customers, and is
the largest Internet carrier in the world.
The
ripple effect of WorldCom’s demise “would put many other telecom
companies in jeopardy” and result in a further depression of telecom
industry assets, he wrote in an opinion piece in early July.
The
company, which emerged from obscurity in the southern U.S. state of
Mississippi in 1997 with the 37-billion-dollar takeover of
long-distance provider MCI, became one of the major success stories of
the 1990s economic boom.
WorldCom’s
public woes began with the April 30 resignation of chief executive
Bernie Ebbers as the company sank under a mountain of debt and faced a
government inquiry into its finances.
Federal
regulators were already investigating the firm’s accounting
practices, especially the way in which it covered 360 million dollars
in loans to Ebbers for stock margin calls.
The
U.S. Securities and Exchange Commission filed fraud charges June 26
against WorldCom, a day after the company announced officials had
misrepresented 3.8 billions of dollars in expenses for 2001 and the
first quarter of this year.
The
news sent the company’s stock price plummeting to as low as six
cents a share, leading to its delisting from the Nasdaq exchange.
Earlier
this month, congressional investigators revealed WorldCom executives
had repeatedly brushed off warnings about shady accounting practices.
WorldCom
spokesman Brad Burns said that the company hopes to struggle back to
its feet after reorganizing.
“Our
time frame is to be through the bankruptcy process in nine to 12
months,” Burns said.
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