WorldCom Inc. plans to file its corporate reorganization plan in federal court today, putting the company on track to emerge from bankruptcy protection as early as September after it sheds more than $30 billion in debt, sources familiar with the plan said yesterday.
The company's bondholders have signed off on the deal, a move that would likely ease approval by the U.S. Bankruptcy Court for the Southern District of New York.
The reorganization plan effectively divvies up ownership of the nation's second largest long-distance company among three major factions of bondholders, who control its $30 billion in bank debt. The company also owes about $10 billion in unpaid bills.
All but $4.5 billion to $5.5 billion in debt would be wiped out by the time WorldCom emerges from Chapter 11 bankruptcy under the plan to be proposed today. The company is to remain largely intact with no major sales of assets other than those previously announced, such as its underperforming wireless division.
Under the proposed plan, WorldCom bondholders are to receive 36 cents on the dollar and majority control of the company after it emerges from bankruptcy. MCI bondholders are to receive 80 cents on the dollar and Intermedia bondholders are to receive 94 cents on the dollar. The stock held by existing shareholders is to be wiped out.
The MCI and Intermedia bondholders are the legacy of WorldCom's merger-and-acquisition drive in the past five years. WorldCom acquired MCI in 1998 for $40 billion and Intermedia in 2001 for about $4 billion.
WorldCom filed for Chapter 11 bankruptcy in July shortly after revealing a massive accounting scandal. The total amount of improper accounting at WorldCom may eventually total $11 billion, according to sources familiar with several ongoing investigations into company finances.
If WorldCom succeeds in filing its reorganization plan today, it would mark a major milestone for the company and its new chief executive, Michael D. Capellas, who took over the company in December and promised that the reorganization plan would be in place by the court-imposed April 15 deadline.
Although the plan has the support of the bondholders, sources familiar with the company said there may be some opposition from other debtors, including companies left with unpaid bills. Some of the companies are WorldCom rivals, such as the former regional Bell companies that have an interest in delaying or blocking WorldCom's exit from bankruptcy. However, a source close to the creditors committee said yesterday that critics of the plan would be unlikely to affect WorldCom's ability to emerge from bankruptcy. The plan is the product of six weeks of negotiations and has the support of company's creditors committee, which includes investment groups such as Matlin Patterson Global Partners LLC and Silverlake Partners. The two groups have been buying up WorldCom bonds for the past several months, the source said.
The company also is to file today an outline for a three-year turn around plan, which would focus on its global network and Internet backbone to offer customers a suite of voice and data services.
Among new executives, WorldCom is to name Robert T. Blakely as chief financial officer. Blakely was a former chief financial officer of Tenneco Inc. and was a managing director of Morgan Stanley. He also recently served a four-year term on the Financial Accounting Standards Advisory Council.
WorldCom, meanwhile, plans to announce today that it wants to change its name to MCI from WorldCom. Although the company is to begin operating under the MCI brand, some court documents would continue to be filed under WorldCom, at least until the company emerges from Chapter 11 status.
The company also plans to move its headquarters from Clinton, Miss., where WorldCom had been based, to Ashburn, where most of its key executives, including Capellas, have been working for months. About 4,000 WorldCom employees now work out of the Ashburn facility.