Copyright 2002 P.G. Publishing Co.

Pittsburgh Post-Gazetteā€¦07/19/2002

From LexisNexis

WorldCom Inc., accused of fraud for its accounting practices, may file the biggest bankruptcy in U.S. history as early as Sunday to cope with creditors owed more than $35 billion, people close to the situation said.

Chapter 11 would keep creditors at bay and suspend dozens of lawsuits as WorldCom tries to restructure its debts and negotiate a recovery. Chief Executive Officer John Sidgmore has said that WorldCom is considering a Chapter 11 bankruptcy filing.

The company would be able to continue operating under existing management. WorldCom, with $21.3 billion in 2001 sales, has more than 20 million customers and carries most of the United States' Internet traffic.

The second-biggest U.S. long-distance phone company revealed in June that it misreported $3.9 billion in costs as capital investments, prompting the Securities and Exchange Commission to file fraud charges. The financial restatement triggered a $2.65 billion loan default and led banks to cut off credit. Chief Financial Officer Scott Sullivan was fired.

"We're declining to comment on any speculation," Julie Moore, a WorldCom spokeswoman, said.

In addition to the SEC inquiry, the company is under investigation by the Justice Department and at least two congressional committees. The company is conducting an internal accounting probe back to 1999 that lawmakers say may reveal another $1 billion in misreported costs.

WorldCom reported assets of $103.9 billion in a May filing with the SEC, meaning it would eclipse Enron's record by more than $40 billion.

WorldCom won't sell holdings in its wholly owned subsidiaries for 80 days, in a deal with lenders that allows the phone company to use $2.5 billion borrowed from 25 banks.

The agreement was concluded yesterday after court hearings Wednesday, and U.S. District Judge Jed Rakoff approved it. The banks sued WorldCom last week, alleging that it misrepresented its financial condition to obtain a loan six weeks before disclosing it hid $3.9 billion in expenses.

The banks, including Deutsche Bank AG, ABN Amro Holding NV and Fortis, had sought an immediate freeze on WorldCom's use of the money. A freeze would have put the company "essentially out of business," a WorldCom lawyer told a New York state judge last week.

The agreement provides "breathing room" while the company tries to raise cash and won't affect attempts to sell wireless operations and businesses in Japan and Latin America, WorldCom lawyers said yesterday. Bloomberg News staff writer Christopher Mumma contributed to this report.