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WorldCom files for bankruptcy

WorldCom CEO John Sidgmore says the company will use the reorganization to regain its financial health.
WorldCom CEO John Sidgmore says the company will use the reorganization to regain its financial health.  

NEW YORK (CNN/Money) -- WorldCom, the No. 2 long distance phone company in the United States, filed for Chapter 11 bankruptcy protection late Sunday, nearly one month after it revealed that it had improperly booked $3.9 billion in expenses.

WorldCom, crushed by its $41 billion debt load, made its filing in the Southern District of New York.

With $107 billion in assets, WorldCom's bankruptcy is the largest in United States history, dwarfing that of Enron Corp. The Houston-based energy trader listed $63.4 billion in assets when it filed Chapter 11 late last year.

WorldCom's non-U.S. units were not included in the filing.

WorldCom filed for Chapter 11 bankruptcy protection nearly one month after it revealed it had improperly booked $3.9 billion in expenses. CNNfn's Fred Katayama reports (July 22)

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Bankruptcy had long been expected for WorldCom. Under Chapter 11, the company can continue to operate while it develops a reorganization plan.

Financing lined up

WorldCom last week lined up $2 billion in debtor-in-protection financing from Citigroup, J.P. Morgan and G.E. Capital, that will allow it to operate while in bankruptcy.

That financing must still be approved by the bankruptcy court.

WorldCom has already secured a $750 million commitment from its lenders. The additional funds will allow the company to satisfy obligations, including payment of new services, employee wages and other obligations. The company also said the bankruptcy would have no immediate effect on its customers.

WorldCom, which operates the world's largest Internet network, employs 60,000 people in 65 countries.

"We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity," CEO John Sidgmore said in a statement. "We will emerge from Chapter 11 as quickly as possible and with our competitive spirit intact."

New board members

The embattled telecom also said Sunday that it elected two members to its board: Nicholas deB. Katzenbach and Dennis R. Beresford.

Katzenbach is a former U.S. attorney general and former general counsel of IBM Corp. Beresford is currently a professor of accounting at the University of Georgia and a former chairman of the Financial Accounting Standards Board.

Katzenbach and Beresford will serve on a special investigative panel to review WorldCom's accounting practices.

WorldCom has teetered on the verge of bankruptcy since revealing on June 25 that it had incorrectly accounted for $3.9 billion in operating expenses.

The admission cast WorldCom into the top tier of scandal ridden companies alongside that of Tyco International, Global Crossing, Adelphia Communications and, of course, Enron.

WorldCom's fortunes began declining in late 1999 when businesses slashed spending on telecom services and equipment. I

n April, CEO Bernie Ebbers resigned when questions arose about $366 million in his personal loans from the company. Ebbers entered the long-distance telephone business in 1983 with a Jackson, Miss., company known as LDDS.

He grew the company through a series of acquisitions and changed its name to WorldCom in 1995. In 1998, he bought MCI, the nation's No. 2 long-distance provider behind AT&T Corp. for $37 billion.

Success story of 1990s

WorldCom had been seen as one of the sucess stories of the 1990s. Three years ago the company used its lofty stock price to make a bid for competitor Sprint Corp. in a $129 billion deal. But regulators blocked the deal and a softening market for telecom services weakened the company's performance.

The Chapter 11 filing will provide WorldCom with some relief. The company has struggled with its $41 billion in debt, $24 billion of which is in bonds.

Once its problems came to light in June, many of its banks refused to provide the company with any more money, unless it was secured with WorldCom assets.

WorldCom's creditors are estimated at more than 1,000, according to the bankruptcy filing. Included in the top 50 are J.P Morgan Chase, Citibank, Goldman Sachs and Credit Suisse First Boston.




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