http://news.bbc.co.uk/hi/english/business/newsid_2142000/2142421.stm
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Sunday, 21 July, 2002, 23:28 GMT 00:28 UK
WorldCom on verge of
bankruptcy

Mr Ebbers' firm was worth $175bn at its peak
The chief executive of scandal-hit telecoms giant
WorldCom, John Sidgmore, has said it is about to file
for bankruptcy.

It will be the biggest bankruptcy in US corporate history.

WorldCom's $104bn in assets, 85,000 employees and
operations in 65 countries eclipse the scale of last
year's failure of energy trader Enron, the US's biggest
bankruptcy so far.

According to weekend media reports, WorldCom has
lined up about $2bn to keep operating during what
promises to be an extremely complex bankruptcy
reorganisation.

A major source of concern is whether holders of
WorldCom's $30bn in bonds will be able to swap their
debt for shares in the restructured firm, usually a key
demand under these circumstances.

WorldCom has been charged with fraud after admitting
hiding $1.2bn in losses by falsely accounting for
expenses worth $3.85bn.

Tricky work

Under US bankruptcy laws, a so-called Chapter 11 filing
allows a firm a breathing space to get back on its feet
without the demands of creditors.

Such a procedure, administered by a special court, is
always complex.

And in the case of
WorldCom, a huge
company with sprawling
international operations,
20 million customers and a
number of question marks
over its business practices,
it should be even more so.

Although WorldCom
appointed vice chairman Mr
Sidgmore as its new chief
executive in April to
succeed founder Bernie
Ebbers, some have
suggested it may need to
bring in a turnaround
specialist to see the
process through.

As a series of similar cases
have shown, companies are prone to lose customers if
they do not resolve outstanding issues.

Rivals such as Sprint and AT&T have said they have
seen a spike in inquiries from customers looking to
switch carriers.

Humiliation

WorldCom had hoped to avoid bankruptcy entirely,
arguing that the frauds were the work of individuals and
not indicative of any deeper sickness in the firm.

But a collapse in confidence in the company as a whole
has cut down its financial options.

Bankruptcy would be a humiliation for a firm that was
valued at $175bn at its height in 1999.

The main question facing investigators and investors is
whether the accounting fraud was an aberration, or a
sign of a diseased company.

If the former, then shareholders should hope to
salvage something from the current situation - a
possibility that persuades bond investors to wish to
swap their holdings for shares.