MCI works out deal with creditors
NEW YORK (AP) – MCI removed two of the thorniest obstacles remaining in its path from bankruptcy, agreeing to pay $353 million to silence some of the last vocal objectors to the scandal-ridden company’s plan to repay a small fraction of its $41 billion debt. The deal early Tuesday with two groups of creditors, brokered by MCI chief executive Michael Capellas, was reached just hours before a scheduled hearing to consider the existing reorganization plan. U.S. Bankruptcy Judge Arthur Gonzalez granted a request to adjourn until Thursday afternoon to let the parties officially approve the agreement, and to revise the financial reorganization plan to reflect the new accord. The vast majority of creditors had already signed on in favor of the existing plan, which would leave the former WorldCom Inc. with debts of just $5 billion. Still, MCI was motivated to get more creditors on board so as to avert some courtroom mud-slinging and help speed the company’s exit from the cloud of bankruptcy. As it is, MCI is struggling to restore its reputation amid ongoing federal and state investigations into an accounting fraud that fabricated $11 billion of profits, having renamed itself to help put the scandal in the past. Complicating the effort is a new probe into allegations that MCI has been disguising long-distance calls to avoid paying fees owed to local phone companies that connect such calls. The active involvement of Capellas in the negotiations was “an assessment that it would be in the best interests of the company not to have a contentious confirmation hearing,” said Marcia Goldstein, one of the lead bankruptcy attorneys for MCI. “This streamlines the process tremendously,” said Goldstein. “It eliminates the two most extensive objections” to the company’s plan to emerge from bankruptcy only a little more than a year after filing the biggest Chapter 11 in U.S. history.
According to the new deal, a small group of creditors that would have been snubbed entirely under the existing plan will now be paid 44.5 cents on the dollar.
Another small group of dissident creditors that was slated to be repaid 36 cents on the dollar for their claims will now receive 52.7 cents on the dollar.
Importantly, the deal also drew support from the major creditor groups who had already approved the existing reorganization plan and own the vast majority of the company’s debt.
Goldstein also told the court that MCI is close to reaching an accord with another class of dissenting creditors and is pursuing discussions with other groups that object to the current plan.
As it stands now, the hearing to consider the plan could conclude by mid-October, leaving the possibility that MCI could leave bankruptcy by the end of the year or in early 2004.
The deal calls for MCI to pay $188 million in cash and $165 million in new debt to the owners of $750 million worth of a riskier class of debt securities issued by the company prior to bankruptcy. That amounts to about 44.5 cents per dollar owed.
In turn, that group will pay $19 million in cash to another group of creditors holding debts that are owed to “trade” vendors who supplied goods and services to the old MCI before its acquisition by WorldCom.
In addition, the owners of the highest-quality debt issued by MCI before the acquisition have agreed to give $21.2 million from their settlement to holders of the trade claims. The combined payment of $40.2 million would amount to nearly 53 cents per dollar owed.
Meanwhile, by agreeing to give up part of their settlement, the senior MCI creditors will be paid about 79 cents on the dollar instead of the 80 cents called for under the prior debt repayment plan.
AP-ES-09-09-03 1441EDT