Faced with dwindling cash reserves and creditors playing hardball,
WorldCom could file for Chapter 11 bankruptcy protection
as early as Monday, according to reports.
Friday’s edition of The Wall Street Journal, quoting unnamed source
close to the company’s finances, said WorldCom had about $600 million to
$700 million in cash, of which $250 million is in control of the company’s
overseas operations. The cash has been eaten away since WorldCom announced
June 25 its $3.8
billion earnings restatement, as WorldCom’s vendors have demanded
upfront payments from the teetering telecom, the paper reported.
A bankruptcy filing by the Clinton, Miss., company would be the largest in
U.S. corporate history, eclipsing Enron’s swift collapse last year. However,
it would not put WorldCom out of business, and the nation’s No. 2
long-distance carrier and largest Internet backbone provider would carry on
operations. The filing would give WorldCom time to construct a
reorganization plan that would allow it to pay off its debts.
If the company does file for bankruptcy, it would not be alone in the
battered telecom sector. The list of former high-flyers restructuring is
long: Global Crossing, Williams Communications, XO Communications, and
Winstar, among others.
At his press conference early this month, WorldCom CEO John Sidgmore
acknowledged bankruptcy was a real possibility for the company. He stressed
that a filing would not be a death knell for the company, and concerns over
the fate
of its Internet backbone arm, UUNet, were unwarranted.
“I honestly don’t think, under any of the scenarios under discussion,
there’d by a blip in the level of service,” he said.
While the filing would not come as a surprise, it does come sooner than many
analysts thought, sped along after most of WorldCom’s lenders last week moved to
freeze a $2.65 billion loan made to the company in May, just before it
announced its accounting irregularities.
At the time, the Journal reported J.P. Morgan Chase and Citigroup,
the two WorldCom lenders not involved in the suit, had joined with GE
Capital to provide a bankrupted WorldCom with debtor-in-possession
financing, which is funding for companies in bankruptcy to continue
operations.
