July 22, 2002, 9:11 AM — WorldCom Inc. will conduct business as usual while it develops a reorganization plan under Chapter 11 of the U.S. Bankruptcy Code, the company said in a statement Monday morning.
The company filed for court protection Sunday evening in the U.S. Bankruptcy Court for the Southern District of New York. That filing covers WorldCom and substantially all of its active U.S. subsidiaries, but not its non-U.S. subsidiaries, according to the statement.
WorldCom's is the largest bankruptcy filing in U.S. corporate history, the Wall Street Journal said in its online edition Sunday night, with the company listing assets of over US$100 billion, and having more than 1,000 creditors.
The company has debt estimated at $32.8 billion, several thousand corporate customers, serves around 20 million consumers and runs the world's biggest Internet network. Subsidiaries include Internet infrastructure company UUNet Technologies Inc. and telecommunications carrier MCI Communications Corp.
"Our debt had become the enemy of our company, threatening our viability and driving down our stock price. We regret we are in this position, but the significant accounting irregularities we discovered reduced our refinancing options. This is the only way to provide for the future, and help the greatest number of people, including our customers, employees, and share holders," said John Sidgmore, president and chief executive officer (CEO) of WorldCom at a New York press conference Monday morning.
Chapter 11 provides a financially beleaguered company a method to keep operating its business under protection from its creditors while developing a plan for resolving its financial problems. The filing means that WorldCom will not have to pay interest due on loans taken out earlier.
Creditor groups and company management will now negotiate what they think a reorganized company will be worth, and issue stock to senior bondholders as compensation, said Edie Hotchkiss, associate professor of finance at Boston College. It's likely that smaller bondholders will see nothing, depending on how the negotiations play out, she said.
Also, WorldCom's current creditors might not be its creditors once a bankruptcy plan is completed, said Hotchkiss. Buyout firms and other investors often snap up the debts in cases like these, because the creditors just want to make sure they get something from their investment, she said.
"WorldCom plays a vital role in America's national security infrastructure, and this (filing) will allow us to serve (our customers) in a normal manner, and operate our business in a normal course," said Sidgmore.