Battered WorldCom Nearing Bankruptcy Filing

WorldCom Inc., struggling to find billions to keep its telecommunications empire from crumbling, may be only days from a bankruptcy filing that would dwarf those seen in the past.

The Clinton-based long distance, Internet and data services provider revealed last month that it disguised nearly $4 billion in expenses to make it appear more profitable. Since then, analysts have said a bankruptcy filing was inevitable. A source in the company familiar with WorldCom's financial situation said the telecom could opt for Chapter 11 by Monday. Company officials declined to comment.

With more than $100 billion in assets reported at the end of March, a WorldCom bankruptcy would be twice as large as Enron's record-setting slide into Chapter 11 last fall.

"They have no choice,'' said Patrick Comack, an analyst with Guzman & Co. in Miami. "It appears they've been burning through their cash. They have no money left.''

WorldCom, which has more than $30 billion in debt, has been in talks to secure $3 billion in financing. A company lawyer said earlier this week the company has nowhere near enough money to repay $2.65 billion in loans that a group of banks is demanding. What cash the company has left appears to be going quickly as WorldCom suppliers demand up-front payments, Comack said.

In an e-mail sent to employees Thursday, chief executive John Sidgmore again pledged his commitment to save the company and said he and other executives were "considering every possible option to obtain replacement financing.''

"Financing negotiations are at an important juncture,'' Sidgmore wrote.

Last month, the company began laying off 17,000 of its 80,000 workers worldwide. AFL-CIO President John J. Sweeney told Sidgmore in a letter Friday that a number of WorldCom employees had contacted the union with concerns of how they'll be treated if the company files for bankruptcy. Sweeney said Enron's treatment of employees after its collapse was a prime example of how not to handle such a situation.

"Most notably, Enron management's decision to first make more than $100 million in bonus payments to executives, then file for bankruptcy and then lay off thousands of people... set a standard for how to ensure maximum suffering among laid-off employees while providing maximum payouts to a privileged few,'' Sweeney said in the letter.

He included 10 principles for employee treatment that he urged WorldCom to follow.

It's not certain how a bankruptcy filing would affect the millions of consumers and thousands of large companies that use WorldCom's voice and data services. WorldCom also is the world's largest carrier of Internet traffic.

In Chapter 11, a company is allowed by federal law to maintain possession of its business and control operations, unless the court rules otherwise. Earlier this week, WorldCom sought to calm its creditors by offering to promise not to sell any of its subsidiaries over the next 80 days, a move that a lawyer for the company said was an effort to buy itself "breathing room.''

At a hearing in New York on Wednesday, the company informed U.S. District Judge Jed S. Rakoff of the deal between WorldCom and major creditors, an agreement that would halt the progress of a lawsuit against the company by 25 banks to recover $2.5 billion in loans. WorldCom lawyer Joseph Allerhand said returning the $2.5 billion to the banks was easier said than done.

"There's been a lot of talk and emphasis about billions of dollars and it's just not the reality,'' Allerhand said at the hearing. He said there was not $2.5 billion or anything near that figure "sitting on a table at WorldCom untouched.''

WorldCom signed an agreement with the banks on June 8, 2001 that permitted it to borrow, repay and reborrow up to $2.65 billion within a year. In court papers, the banks said that "on May 15, 2002, barely six weeks before disclosing a massive accounting fraud,'' WorldCom told the lenders by telephone "that it intended to draw down the entire $2.65 billion in a single borrowing.''