WorldCom debt load shrinks

PHILADELPHIA: Telecommunications company WorldCom Inc. may emerge from its bankruptcy reorganization with as little as $2 billion to $4 billion in net debt, and more than $1 billion in cash on its balance sheet, sources said.

Negotiations among the creditors will continue through the weekend, and the plan for WorldCom's proposed capital structure may change substantially before being filed with the bankruptcy court on April 15, these people said.

WorldCom, which last year filed the world's largest bankruptcy case in the wake of a $9 billion accounting scandal, declined to comment. A representative for the creditors' committee did not return calls seeking comment.

Although the relationship between the creditors and WorldCom's new management team has been mostly positive, developing the reorganization plan has been complicated since it involves several classes of creditors vying for a sweeter stake in the new company, sources said.

"Each class (of creditors) is jockeying for the biggest piece they can get, so it's very complicated and very much in flux still," said one source who declined to be named.

The company has said it would file its reorganization plan with the bankruptcy court by April 15. Such proposals, however, typically change somewhat as a bankruptcy judge reviews claims and other parties voice objections or concerns.

WorldCom can file the plan without the support of all the creditors, but it wants to get the backing from as many bondholders as possible, sources said.

"The key here is to get as many creditors on board as possible, to have a lot of creditors supporting the plan. But there will absolutely be dissenters. There always are," a second source said.

As it files the plan, WorldCom also is expected to announce that it will dump its tarnished brand name and adopt the name of its MCI residential long-distance unit, sources said.

The move, which was reported by Reuters in January, would allow the company to take advantage of its strong MCI brand, which was known for innovation, competition and growth, and put the scandal-tainted WorldCom name to rest, analysts said.

The Clinton, Mississippi-based company also is expected to sketch out more details on its strategy to target small and mid-sized businesses, improve its residential calling plans, and focus more on revenues and profit-margins rather than just grabbing market share at the expense of the bottom line.

BATTLING FOR PIECE OF $12 BILLION PIE

Creditors will split the value of WorldCom assets, which they estimated at about $12 billion. That value will be split between debt and equity in the reorganized company.

The company is expected to emerge from bankruptcy with at least $1 billion in cash on its balance sheet to give it a safety net for operations, capital spending or other expenses, one source said.

The net debt, plus the cash funding, would put WorldCom's total debt at $3 billion to $5 billion, depending on the final negotiations, the source said.

WorldCom, which has about $32 billion in bond debt, has several classes of creditors that may get simplified into two classes in the final reorganization, one source said.

WorldCom bondholders hold roughly $27 billion of the bond debt, while MCI bondholders own about $3.3 billion and Intermedia bondholders own about $1.7 billion.

Under one of the scenarios being discussed, the WorldCom and MCI bondholders may get grouped together as one class of creditors, while the Intermedia bondholders may be placed into a different class and recover a different amount of their investment, a source said.

"The goal is to get the company out of bankruptcy as quickly as possible. If you have to give somebody a little bit more of the pie to expedite it, then let's do that," a source said.

WorldCom bonds are currently trading at about 26 cents on the dollar, while Intermedia bonds are trading at about 70 cents on the dollar.

WorldCom's sales have been trending downward since its Chapter 11 bankruptcy filing in July, when it had $2.46 billion in monthly sales. Each month, sales have been little changed or lower than the previous month, putting WorldCom on track for an annualized revenue drop of about 26 percent, analysts said.

Rivals such as AT&T Corp. and Sprint Corp. have claimed they are winning contracts and market share as corporate customers pare their business with WorldCom. The two carriers have said they have pulled a combined $2.1 billion in business away from WorldCom since its financial woes emerged last summer.