Worldcom, notorious for massive corporate fraud, is trying to turn
over a new leaf coming to agreement with its creditors on a revised
bankruptcy reorganization plan.
The company announced a new reorganization plan with the U.S. Bankruptcy
Court for the Southern District of New York. The company said it would be
permanently changing its name to MCI, and relocating its corporate
headquarters to Ashburn, Va.
Worldcom also announced management changes, including the naming of Robert
T. Blakely as its new chief financial officer.
Former Compaq CEO Michael Capellas is MCI's chairman and CEO and he said
that the company's senior noteholders have agreed to the terms of the new
reorganization plan, which will include approximately $3.5 billion to $4.5
billion in debt, net of cash.
The MCI bankruptcy reorganization plan could potentially lead to the company
emerging from Chapter 11 proceedings by September.
"The fall time frame is very aggressive and there is the question of whether
the judge will approve the reorganization plan, and after that it all
depends on execution," says Lisa Pierce, research fellow for Giga
Information Group, a subsidiary of Forrester Research.
The revival of WorldCom, under the name MCI, could present a leaner rival to
others in the battered telecommunications sector.
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"MCI is fulfilling their legal requirements and AT&T could be facing a
formidable competitor. If I was Dave Dorman, I wouldn't want Michael
Capellas breathing down my neck," Pierce added.
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Critics of Worldcom say its new plan to reorganize is unfair, because if and
when the court allows it to emerge from Chapter 11 bankruptcy, the company
then would be permitted to remove its massive debts from its accounting
ledgers, and be allowed to continue operating. The company presided over
accounting fraud to the tune of close to $11 billion in overstated revenues,
and false profits, several investigations of the company and potentially
culpable individuals are ongoing.
Several companies have been lobbying the Federal Communications Commission
that MCI-WorldCom should be liquidated and permanently put out of business.
But Pierce says the new MCI may well be on the road to recovery.
"They are doing a lot of the right things. For instance, they are doing a
much-needed overhaul of their back office system," Pierce said.
Under the new reorganization plan, the company would be left with between
$4.5 billion and $5.5 billion of debt, while eliminating $36 billion of
debt.
There is expected to be a court hearing to confirm the bankruptcy plan is
expected in August.
Under the current bankruptcy reorganization proposal, WorldCom bondholders
would get 36 cents of new debt and equity for each dollar they are owed. MCI
creditors would get about 80 cents on the dollar and bondholders of the
company's data subsidiary Intermedia would get 94 cents on the dollar.
WorldCom's stock and bonds are expected to have a total market value of
about $12 billion as the company emerges from bankruptcy. The company is
expected to issue a new stock under its new MCI corporate moniker.
MCI's new three-year business plan, says the company is expecting to
generate $24.7 billion of revenue in 2003, boosting that 4.5 percent to $25.8
billion in 2004, and 7 percent to $27.5 billion in 2005.
But while a judge still needs to approve MCI's reorganization plan, Pierce
says the company needs to develop a coherent pricing strategy.
"I see a lot of responses to MCI's customer RFPs. But their pricing
strategy seems erratic. They are bidding too high on some deals and
underbidding on others. They need to take a more rational pricing approach,"
Pierce said.
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MCI's Lenders Back Plan to Exit Bankruptcy