Chapter 11 looms For WorldCom

Bonded labour

ComputerWire: IT Industry Intelligence

WorldCom Inc is trying to bash out a massive debt-for-equity swap with its bondholders, as the company battles to survive. Wall Street Journal reported sources close to the talks as saying Friday that holders of $26bn of bonds are talking to WorldCom management over the potential deal, which would be executed under the protection of Chapter 11.

The carrier, which revealed two weeks ago it inaccurately booked $3.8bn over the last five quarters, owes its creditors $32.8bn, the majority of which is due its bondholders. The company has up to $5.75bn in debt repayments due in the next year, reports said.

Any swap of debt for equity would allow the company to function as a regular business, unburdened by the huge debt, but would likely leave WorldCom common shareholders with next to nothing. The company says it is still talking to its banks, which it owes some of the debt, to figure out additional funding.

Having learned lessons from the Enron Corp scandal, regulators are currently all over WorldCom. The beleaguered carrier is currently being investigated by the Securities and Exchange Commission, Congress, and the US Justice Department, over allegations of fraud. The company fired its CFO following the uncovering of the accounting errors.

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