Telecom giant MCI (formerly WorldCom), trying to shed over $35 billion
from the largest corporate bankruptcy in history, said it has struck a deal with dissenting creditors that were standing in the way of blessing its reorganization plan.
In a statement Tuesday, Michael Capellas, MCI’s chairman and CEO, said “with today’s proposed settlement among the various creditor groups, MCI has cleared one of the last major hurdles along its path toward emergence from Chapter 11.”
Although MCI’s reorganization plan still has objections to overcome regarding its plan to emerge from bankruptcy, the latest deal at least mollifies the objections of two creditor groups on how much money they would get back from the company.
As a result of the overnight negotiation sessions, one group holding bonds (called Quips) will be paid back about 45 cents on the dollar instead of the prior offer of nothing, the company said. The total debt in that securities class is about $750 million.
Another class of creditors, holding about $235 million worth of debt, is expected to get just under 52.7 cents on the dollar.
Capellas, who was actively involved in the negotiations late Monday and early Tuesday, said the 55,000 employees of MCI have worked hard to reach “this significant milestone and we are pleased to have the support of the overwhelming majority of our creditors for our Plan of Reorganization.”
U.S. bankruptcy Judge Arthur Gonzales Monday afternoon called off MCI’s
New York confirmation hearing about the company’s reorganization plan in order for dissident creditor committees to negotiate with MCI’s attorneys and other major
creditor committees over how many cents on the dollar they would get back. A breakthrough settlement appeared possible in the early hours of Tuesday.
MCI, which filed for Chapter 11 bankruptcy protection in July of 2002,
has been trying to put an $11 billion accounting scandal behind it as it
emerges from bankruptcy. Part of that plan includes reducing its $41 billion worth of debt obligations to about $5 billion. The plan has infuriated rival telecom companies such as AT&T and Verizon, who say the bankruptcy reorganization gives MCI an unfair
advantage following the worst accounting scandal in U.S. corporate history.
But MCI has argued that it has put its house in order after sweeping
out former executives who were at the helm of the company when its accounting
deceptions began to unravel, which led to a restatement of $9 billion.
Bernard Ebbers, the former CEO of WorldCom, which is changing its name
to MCI as part of its reorganization, is facing 15 criminal charges of
securities fraud by the state of Oklahoma in connection with the accounting
scandal that brought the telecom giant low. He has pleaded not guilty. Former CFO Scott Sullivan has been charged in New York with securities fraud and has also pleaded not guilty. The case is proceeding through pre-trial discovery.
Five other executives are also facing charges by the Oklahoma Attorney
General. The U.S. Attorney for New York’s Southern District is also
investigating the company in connection with ongoing accounting-fraud
probe. A spokesman in the U.S. Attorneys office in New York said the probe is ongoing.