Mississippi business reacts to bankruptcy filing
Published: July 29,2002
After starting as a fledgling long distance reseller in Hattiesburg in 1983, the Mississippi company that became known as WorldCom, the nation’s second largest long distance provider, wrote itself into the history books on July 21, when it became the nation’s largest-ever corporate bankruptcy.
With shares worth little more than a dime, the beleaguered telecommunications giant filed for bankruptcy protection in the U.S. District Court for the Southern District of New York shortly before 9 p.m. EST. The Clinton-based corporation listed about $107 billion in assets on its balance sheet, nearly a month after a $3.8 billion accounting error was discovered, where expenses had been inaccurately reported as assets. When negotiations for new credit terms stalled between WorldCom and 25 banks that had loaned the company $2.65 billion last May — the banks had sued to recoup their investment — bankruptcy protection became inevitable.
“They had a solid business, so in some ways, the bankruptcy was a surprise,” said William M. “Billy” Mounger II, former chairman of CIT.ms and former chairman of TeleCorp PSC. “When you’re growing your business, you use a lot of debt. The debt works for you when things are going up, but when it goes down, the debt can really bite you. It’s simple business, really.”
Under the bankruptcy reorganization plan, WorldCom will be allowed to continue operating while it negotiates with creditors who loaned the firm nearly $33 billion, with $29 billion owned by bond holders. Banks and trade creditors comprise the rest. Owners of nearly three billion shares of WorldCom stock will be last on the list to be paid.
“One issue that’s not getting much publicity these days is that the folks in Washington who have tried to turn this into a case of crooks running the company have played a major role in making it extremely difficult for businesses in the telecom arena to be profitable,” said Ashby Foote, president of Vector Money Management in Jackson.
“They balkanized the industry. They wanted to meddle whenever they could, whether it was the state public service commissions or other regulators not allowing mergers to take place when consolidation should have been allowed to move forward.
“It has done extraordinary damage to the U.S. economy and to this industry, which was one of the most dynamic and innovative industries in the economy. The meddling heavy hand of government has played a very destructive role in this. That’s not to say that all the corporate players are Prince Valiant and Cinderella, but they’ve been toiling up a very difficult slope and it’s unfortunate for all of us. Now the political frenzy to find a scapegoat is even sadder to see in a country that supposedly believes in free markets.”
WorldCom CEO John Sidgmore has said the company plans to raise as much as $2 billion by selling various wireless divisions, including Jackson-based Skytel, and its Latin American properties. Industry watchers have said that, if handled properly, WorldCom could emerge from Chapter 11 in nine to 12 months. They also hinted that with the restructured debt, WorldCom could further drop its prices, putting a squeeze on the rest of the telecom industry.
“Our total focus will be to take this company forward in the best way possible and with the highest ethics so that WorldCom can continue to be an important part of our economy,” said WorldCom CEO John Sidgmore.
Stacey Wall, president of Pinnacle Trust in Ridgeland, said Sidgmore was right on target when he said that WorldCom’s value was not in the switches and pipes underground (the hard assets).
“The value is in the 20 million customers, the brands, the customer relationships,” said Wall. “Breaking it apart does not create more value. So I expect WorldCom to not sell all of its assets off but to emerge from bankruptcy with a restructured balance sheet and with its business hopefully largely intact. It can then re-emerge as a major player among the battered telecommunications players who manage to survive.”
WorldCom may have a very different look by March 31, 2003, the potential court date the Securities and Exchange Commission has received for its case against the company. The case against WorldCom, which will focus on the possible violation of U.S. securities laws by improperly reporting $3.85 billion in operating costs as capital expenses, will not be criminal.
However, criminal charges could be forthcoming from the U.S. Justice Department, and bankruptcy protection won’t help.
Contact MBJ contributing writer Lynne W. Jeter at (800) 993-3392 or email@example.com</a.
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