The crush of lawyers yesterday afternoon in the New York bankruptcy court representing thousands of creditors owed money by telecoms giant WorldCom was so great that WorldCom chief executive Mr John Sidgmore had to sit at the back of the gallery.
The court-issued list of banks and firms exposed to WorldCom, the second-biggest long-distance telephone provider in the US, ran to 120 closely typed pages, with the total amounting to $41 billion (€40.7 billion).
The list was issued as the hearing for the world's biggest bankruptcy got under way in the US Bankruptcy Court for the Southern District of New York before Justice Gonzales, who presided over the Enron bankruptcy filing in December.
With its access to capital destroyed by a vast accounting fraud, WorldCom lawyers filed for bankruptcy on Sunday evening and argued in court yesterday for protection under Chapter 11 of the US bankruptcy code so the company could shield itself from creditors while restructuring.
WorldCom listed more than $107 billion in assets, far ahead of the $63 million listed by Enron, the Texas energy trader that filed for bankruptcy in December, and three times the $36 billion listed in 1987 by Texaco in the world's third-largest bankruptcy.
WorldCom has $35 billion in annual revenue but its profits have rapidly eroded since it disclosed last month it had improperly accounted for $3.85 billion in expenses. European banks have $3.7 billion exposure to WorldCom, with Deutsche Bank, the largest bank loan creditor, owed $241 million and ABN Amro Bank NV $203 million. AIB's subsidiary Allfirst is reported to have $50 million exposure.
Mr Sidgmore said WorldCom would continue to operate and manage its business on a "normal course" and that the bankruptcy would not affect its international operations. While not sure how long the reorganisation of WorldCom would take, he did not expect any of the company's core assets to be sold off.
He said he was aiming for a reorganisation that would last at least through the first quarter of next year and could run from nine to 12 months.
The WorldCom chief executive, who succeeded founder Mr Bernie Ebbers in April, said the company would continue to pay employees and provide benefits, and that services to customers would continue uninterrupted. Mr Ebbers holds a $408 million loan from WorldCom. Under current terms, he has five years to pay it back but the bankruptcy court could demand accelerated repayment. Mr Ebbers may now apply for bankruptcy protection.
The US Justice Department yesterday asked a federal judge to appoint an independent examiner to investigate WorldCom for mismanagement, irregularities and fraud, increasing the prospect of criminal charges.
US Attorney General Mr John Ashcroft said an independent examiner of WorldCom would improve public confidence.
While the Justice Department pursues a criminal inquiry, the US Securities and Exchange Commission has filed civil fraud charges against WorldCom, citing "accounting improprieties of unprecedented magnitude". WorldCom admitted on June 25th that it inflated profits by falsely accounting for $3.85 billion in expenses. "Our plan is to essentially keep the company intact," Mr Sidgmore said.
"The value in WorldCom is not in the switches and the pipes we have underground. . . It's not going to be a liquidation, in my opinion." he said.
WorldCom's list of creditors is made up mostly of bondholders and bank lenders. The largest noteholder is JP Morgan Trust which, as a trustee, lists $17.2 billion in bonds administered for an investor.
