WorldCom to File for Chapter 11 Protection

Mantour writes: "To everyone's big suprise ;), Worldcom is going for Chapter 11. 'The Chapter 11 filing by WorldCom would follow once high-flying companies like energy trader Enron Corp. and Global Crossing Ltd., which crumbled into bankruptcy amid a crush of accounting investigations by federal regulators.' You can get more info in this Yahoo story" Update: 07/22 12:21 GMT by T : mnordstr points out a CNN report calling this "the largest bankruptcy ever."

Comments

Meaningless at this point

[Ars-Fartsica]

The stock price already relfects Chapter 11. WorldCom will either re-emerge from Chapter 11 in a year or so, or other telcos will come in and snap up the pieces.

Sidgemore has already said he wants WorldCom to resemble his old baby UUNET more in the future, so anything not related to data transmission is likely on the block.

So, Here's the Question

[Fished]

I am a Worldcom employee, and here's my question, that I cannot seem to find an answer to anywhere. What does this mean to employees? I find lots about investors, bankers, and bond-holders, but very little about employees.

Re:So, Here's the Question

[stripes]

What about customers as well?

Assuming they are selling a service at a cost that at least covers current costs (ignoring build out a deployment cost!) then either they will keep running it in chap 11 (they can choose to break contracts without peanilty...so they may decide to stop offering a service if they are not making money on it! they can also decide to renogiate any long term contacts they wish, even if they are profitable)....er where was I? Ah, either they will run it in chap 11 and keep running when/if they re-emerge from bankruptcy, or they will sell it off with the infastructure to some company that wants to keep running it.

If the service is not profitable they may try to raise the price, or sell it off, or discontinue it. This is pretty much the golden opertunity for that sort of thing, so if you are getting a "great deal" on something from them, that might not last.

Re:So, Here's the Question

[constantnormal]

In ANY company, employees are given the least consideration. They are viewed simply as a consumable resource, like fuel oil or coal (hopefully a bit more environmentally friendly). If Worldcom had a substantial fraction of its shares owned by employees (a horrible thought, on the face of it, to lose one's job and assets at the same time), they might have a say in the way things go, but as it is, you are merely a part of the machinery. If whoever buys the part you support does not already have people to perform that function, you may get to keep your job (albeit with different pay and benefits), but if a company in a similar business purchases the business unit you work for, unless their people already have more than they can handle, the plan will be for them to do the work you do now.

The other possibility would be if Worldcom was close enough to making a go of it that they did not need to sell off parts of the company, merely a reprieve from debt payments. Or if you work in whatever part remains, you may keep employed -- again, at different pay+benefits.

Hopefully, the retirement savings managed by the company were not used to prop up the collapsing stock price (so the pirates running the show could grab a bit more loot), as was the case at Enron.

The lesson to be learned here? Try not to work for crooks -- a pretty difficult proposition, nowadays.

Re:So, Here's the Question

[stripes]

If somebody had done their calculations right though, deployment costs would not have been a problem in the first place.

Sort of, yes. One problem though is a OC-192 from DC to NY costs the same amount of money whether you have one buy paying you or 85,000 of them. You have to make an assumption about how many people will buy your service so you can estimate how much each on of them has to contribute to the cost of the shared resources. If you guess too low then your prices are too high, and you can't sell enough of the product. If you guess too high you price the product too low and lose money on "each one sold" (but at least you lose less money as more sell!).

With the products WCOM sells, or at least the UUNET part almost all the cost is the backbone (shared!) and emploies (shared!). So the whole price more or less comes down to "how many will we sell". Also when spending in the area takes a downturn it drives you costs up. Which sucks.

Those are all the good reasons not to be able to accurately estimate costs. The bad reasons are they hadn't really had to in the last decade, and never really got in the habit of doing it. So low (or negative) profit products were rescued by high profit ones. In some cases without anyone knowing really. In other cases with people knowing, but it isn't really to your advantage to announce the product you are working on is losing money, now is it? (connect the dots on that on yourself)

Basically you are saying this will shoot their profit level up to where it would have been after all debts had been paid off (or a little higher then where it should have been now if things had been operated properly. . . .)

No, well above that because any capital equipment that wasn't payed for is now free. Any contracts that were the best-possible-price 3 years ago can be re-negotiated now for the new lower prices that fibers "enjoy". Only some of this is just plain being able to adjust prices back to where they should have been! A lot is stuff that really couldn't be done otherwise.

Personally, I am against proceeding on so many fronts that I forget what in the world I have still to pay over from my past battles! WorldCom got into this situation, heck, even giving them the benefit of the doubt that each one of their acquisitions was going to be profitable some day in the future (doubtful. . . .), they ate up so much so fast that now they are about to explode.

Look, this is generic bankruptcy law. It applies to the 2nd largest telcom. It apples to the little bakery down the street form you. It applies to toothpaste makers, and car makers. This isn't a talk about what is being done special because the failure was so huge, it is just what happens to a company that can't pay it's bills, but doesn't want to give up.

I'm not real fond of it myself. I don't know enough economics to tell you if it is on the whole a good thing (it does better preserve the bundled value of things then just giving WCOM's assets to it's creditors) or a bad thing. I know the bankruptcy of dot-bomb companies makes things harder on WCOM and other ISPs because they are stuck with debt form their coutmers, so maybe without such laws not as many telcos would be dragged under now. Or maybe they would. (WCOM being a special case as it looks more like book cooking got them here, not ISP debt...but it is kind of hard to tell from what I read in papers, and even when I worked there I never moved in those circles!)

*sighs* Of course I don't see why companies really bother going public, stupid from what I can see. If you don't have the revenue stream coming in already, then you don't need additional funding, you just need a better plan!

Not true. It is just the "I have a great idea, and all I need is $100,000 to make it happen, so I'll get a second morgatage on my house and do it!" writ large. I was at UUNET before it took on cash from the VCs and things were tight. After we took on the money we spent like nobodies business, and were losing money hand over fist (because we had a more expensive backbone that we had customers to pay for for a few years...but there was no real step between 10Mbit-that-blew-dead-goats-if-you-used-more-then- 6Mbits and 45Mbits!). Not long after it went public it was turning a real profit. I doubt it stopped until long after it was bought by WCOM. So the VC-IPO route worked. The merger part didn't so well because very large companies have dis-economies of scale (I do have enough econ to know that!).

Support your local telemarketers! =^_^=

[dacarr]

People, don't you know that by hanging up on all those MCI telemarketers, you contributed to the ultimate downfall of Worldcom?! How could you! They couldn't make their service any worse than it was because you didn't succumb to telesales!

It's time to upport your local telesales representatives! They're underworked and overpaid! Make them think for their bread and butter!

Bush really dropped the ball

[evilviper]

So, Bush wanted to American people to think he was doing something about the rashes of corporate corruption. So what does he do? He creates a task force, and doubles the (very small) penalties for this sort of thing.

You know what he should have done... If he had said that this sort of activity will fall under the mob laws, this would stop, and we'd know the president was not corrupt. If that happened, that would mean anyone involved in illegial activity would have full liability. You wouldn't just get 10 years in jail, then get out with all your ill-gotten money in-hand. The feds would be able to take away all your assets to pay off debts. Houses, cars, bank accounts, all taken away.

But then half of congress would end up in jail, and probably Bush himself.

Re:Bush really dropped the ball

[Fjord]

Conjugal visits? Not that I know of. No, minimum security prison is no picnic. I have a client in there right now. He says the trick is, kick someone's ass the first day, or become someone's bitch. Then everything will be alright

Re:Bush really dropped the ball

[_Sprocket_]

These execs do things because they don't think they'll get caught, therefore the length of prison sentence is not a factor.

I think its fair to say that these execs either don't think they'll get caught or they manage to convince themselves that what they're doing isn't something they would be prosecuted for. It is almost certain that stiffer penalties would not eliminate future crimes - when has it ever? But that's not the point.

Hundreds of families have had their current and future plans destroyed by these few people's actions. Once caught, they "spend more time at home with family" at their several-milllion dollar residence (or out fishing with son on an undoubtedly expensive boat - both are paraphrased from a local Houston newspaper). If these guys do get nabbed, I really don't care much about jail time. But they sure as hell shouldn't have the rest of their financial lives intact after having destroyed so many other's.

Ultimately, the reason people at this level supposedly justify their income is the level of responsibility they command. They are expected to keep track of a large number of issues and make propper decissions based on these factors. Not everyone can do it - fine. But when you screw up at that level, you should pay. Dearly. That's why you make the big bucks.

Re:Bush really dropped the ball

[Surak]

You can't blame this on Bush. Or the government. Or the Democrats or the Republicans.Or anybody really but the morons at Worldcom and they're auditing firm who thought this would be a good idea.

The legal system has never been able to stop corruption. Corruption goes back at least to the time of Hammurabi. Probably earlier.

Laws are a deterrent, but not much of one.

Re:Bush really dropped the ball

[Zeinfeld]

You can't blame this on Bush. Or the government. Or the Democrats or the Republicans.Or anybody really but the morons at Worldcom and they're auditing firm who thought this would be a good idea.

The WorldCom bankrupcy is the fault of Bernie Ebbers and his crew. It was the insane greed of the CEO that is the root cause of the problem. I mean who honestly needs more than $10 million a year in salary?

The knock on effect on the rest of the markets however is due to Bush. People have no faith in the markets because of a lack of leadership. Bush is not a leader, he is a sock puppet for the corporate interests that paid to elect him.

The reason why the markets fell in real time while Bush prattled about corporate responsibility is because nobody had any faith in either his commitment to make real changes or his ability to do so. Not only was Bush great pals with 'Kenney Boy' Lay and the Enron crooks, he refuses to sack White who personally looted Enron of $50 million while posting $500 million in phony profits for a division that made a huge loss. Bush got rich by precisely the type of Enron style accounting gimmics that are now discredited.

Worldcom may not be Bush's fault, but it highlights Bush's faults. During the election we were told it was OK to have a Boob as President because the real power would be exercised by his appointees. That claim does not look so hot now that Chenney is under SEC investigation for corrupt accounting at Haliburton while the head of the SEC has had to recuse himself from every major investigation that has taken place under his watch.

The political polls are very interesting. When asked 'do you support the President' the results are statospheric, when asked 'do you support George W Bush' his rating is ten to 15 points lower. When the question is 'who would you vote for in 2004' Bush is actually at only 45%. People are not endorsing Bush, they are endorsing the Presidency.

It is not too suprising that advisers like Karl Rove have been pushing to do anything to distract public opinion. What is suprising is that the media failed to report two terrorist alerts that went out last week except in passing. That tactic at least has worn somewhat thin.

The Press essentially gave the Bush administration a free ride for the first six months and after 9/11 became as subservient as Pravda. Now having built him up they will do their favorite trick of breaking him down.

Corperate welfare is BAD

[HanzoSan]

Why should we pay tax dollars to keep a monopoly up and running? I hope the government doesnt step in, the government should never step in to save any company unless its an absolutely vital company such as a food company, or water or electric company where peoples lives are on the line.

Worldcom is a communications company and I hate this corperate welfare shit, we cant get welfare, so why should they?

Re:Too much debt..

[stripes]

WorldCom has close to $30B of debt. The interest payments alone are huge.

Sort of. If they court lets WCOM go into chap 11 the debt is all susspended, along with any pre-chap 11 bills of any kind. To re-emerge from chap-11 they have to show that they are no longer losing money each month, and that they have a "repayment" plan worked out with their creditors. The repayment plan is normally some variant of "screw you, for ever $1 we owed you you get $0.03 and one share of stock...ha ha ha!".

In other words chap 11 basically lets you strip off all the debt (or a huge percentage of it). It also lets you out of any long term contracts (to buy or sell!) that you didn't like, makes it easier to fire people. Oh, and they can "un lease" a building by taking all their stuff out of it and saying "no, were are not paying" to the landlord.

So "too much debt" is no longer WCOMs problem. It is the problem of banks that loaned money, and supplyers that sent goods on purchase orders.

Now I have a theory that the little telco's going bankrupt forced prices down (the little telcos suddonly had "free" infrastructure!) which screwed the medim size ones...and so on. Not just the bankruptcy of corse, it was mostly the drop of the "dot coms", but still I think the bankruptcy laws do have a bit of a chain reaction type thing.

It was the fraud, not the clueless business plan

[Zeinfeld]

So after Bush gets into the Whitehouse by promising to run the country like a business we suddenly discover how many of the businesses are being run.

While there will be a lot of folk pointing out that WorldCom had massive debts, that is not the primary reason for the chapter 11 filing. The banks would have been happy to go on lending if they could trust the books. The company was actually operating profitably - if the 3.8 billion was the limit of the fraud.

So why does a profitable company cook the books? The timing of the fraud makes it look like it was done to save Bernie Ebbers from going bankrupt personaly. He had taken out a massive loan from the company and used it to buy stock. When the market went south Bernie was left owing a third of a billion he could not repay.

The thing I find personally illuminating about all this business is that it turns out that a lot of high powered accountancy turns out to be incomprehensible for the same reason new age psychobabble is incomprehensible - it is complete bullshit.

The problem we now have is that nobody can trust any accounts, even those not audited by Arthur Andersen. While the accounting tricks were clearly being used to mislead in the Enron/Harken cases there are cases where a company might legitimately use a captive company. Equally it is not necessarily fraud when two companies buy from each other (a related party transaction) but how do you tell the difference between a genuine transaction and a fake one?

The problem that the US now faces is that foreign capital is rushing to get out as fast as it can. That may well cause interest rates to rise as the government is forced to fund the budget deficit with loans at higher and higher rates.

Whichever way you look at it this is the end of the line for corporate deregulation. Regulation is now going to be considered pensioner friendly and stockholder friendly. At the very least we will see the sweatheart deals arranged by Enron and the Gramms to exclude energy derivatives from oversight being swept away. But at the deeper level I think that politicians are not going to be able to score easy votes by dennouncing regulation.

It is very curious the way that the second Bush administration is shaping up so much like the first. Stratospheric popularity after an initially successful war in the middle east, then being mired in financial scandal (savings and loans) and a recession while the budget deficit ballooned.

As someone who has been through this..

[Maeryk]

Well, sort of, anyway. ANyone remember when Inacom tanked? I was working for them at the time.
Luckily, I got picked up by a "competitor" who was also onsite at the same place, so I only had a week of questionability.

THe schematic is slightly different.. Inacom claimed they *might* fold.. they claimed they *MIGHT* declare bankruptcy, and they put themselves on the block to be purchased, in whole or in part. Other groups came in, looked decided "I want part of this, but they are going to crash anyway, so I will just wait and absorb their assets after the crash, rather than paying an inflated (read: more than bottom penny) price for them.

However, what Inacom DID do, was broadcast a message on Wednesday, saying everything was cheery, bankruptcy could be avoided, etc. On Friday we got a voicemail saying "the vast majority of Inacom employees have been let go. Pinkertons (I think.. one of hte security companies) employees will escort you from the site."

We sued, in a class action, for lost wages, and violation of the WARN act.. (if a company knows its tanking, and doesnt tell you, they are liable.) This suit is still in progress, as far as I know. And may be for several years.. seeing ANY money, including 401K money can be tough as well. Once the IRS gets ahold of it, they can hold it pretty much as long as they want. Especially if there was financial malfeasance within the company.. you may also find out your company did not pay as much into the 401, health, insurance, unemployment, as they claimed they had. ANd there is nothing you can do, really, once the corporation folds/loses all its assets. The individuals who ran it are blameless, and it is very very difficult to sue them personally. (Hence, corporations of one.. for that very reason).

Good luck.. hope it all works out for you.. but it is often ugly in the long run.

Maeryk

Re:Just one catch...

[Angry Toad]

Organized fraud leading directly to the impoverishment of tens of thousands and loss of thousands of jobs? Knowing and conspiratorial breach of trust at a public company reaping tens or hundreds or even billions of dollars in illicit profits? These are not serious crimes? Apparently some sadsack loser trying to sell an ounce of dope to some other pathetic nitwit is committing a bigger crime. Sheesh.

Re:Bush didnt really drop the ball congress did

[Maeryk]

LOL.. this is almost funny. I love the fact that it is THE one guy in the hot seats fault. Not Congress. Not the SEnate. Not the last eight YEARS of ignoring signs and worrying about guys selling sawed off shotguns in the mountains rather than corporate scandal and greed.

There is a cycle here you'se guys arent noticing. (Or arent mentioning, anyway). After *EVERY* huge economic gain in this, our american society, companies tank like this. Its called "spending money you dont have". Hate to be a bible quoter.. but "Neither a borrower nor a lender be."

The issue isnt as much with the government allowing the companies to regulate themselves.. it is with the BANKS looking to turn huge profits on overnight and offshore loans. See, thats where the banks make money. ANd if they would pass anything more than even a cursory glance at a company's books, they might catch the cookage instead of loaning 3B to a company to aquire another company, and find out six months later its all cotton candy.

The president has a certain amount of expectation to speak on this, but he has no REAL control. He cannot magically wave his pen and make longer prison sentences. That requires an act of the full government. ANd as stated, they wont do it. How many of them do you think have taken payoffs from various companies? Or money for their camppaigns? Or thrown huge bones to these companies in pork barrel politics? If anyone, your senators and congressmen should be the ones you are screaming bloody murder to. Not the PResident.

Maeryk

(Slightly OT) Bush's role in today's economy

[kadehje]

The last paragraph parent post makes what I interpret to be an indirect shot at the current president's economic policies. While this may or may not be the intent of the post, the mindset that I have mentioned is common enough in media reports and ordinary conversation that I feel the need to rant about how I believe President Bush is getting the shaft for a problem he is not primarily responsible for creating.

I can't stand how many people claim that the political blame behind the Enron, WorldCom, and other fradulent companies' downfalls is solely that of President George W. Bush. I find that charge to be along the lines of claiming that Bush's foreign policy failures were the chief reason for last September's terrorist attacks.

As with the terror attacks, there were many causes for the ongoing meltdown of the United States capital market. The factors leading to the sudden bankruptcies of these large companies existed long before the current president moved into the White House, and some existed even before his father lived there. Most important among the causes: the executives themselves that lied about the state of their companies. In at least the Adelphia and WorldCom scenarios, it is pretty clear that blatantly criminal acts took place: they falsely claimed profitability to obtained credit from banks that would not have loaned them money if the banks knew that these companies were in fact losing money hand over fist. These executives should be jailed for AT LEAST 10 years (if they knew that these acts were ruining the company for their own personal benefit, then I would like to see them jailed for life) in addition to making as complete a restitution as possible for bondholders and stockholders.

In addition, the incentives behind this lying about companies' financial statemets has been around since the 1980's, when the "Greed is Good" mantra began to sweep Wall Street. Both in the 1980's (until October 1987) and in the 1990's the booming stock market encouraged companies to do whatever was necessary to boost their stock price. Also, especially in the 90s, the ridiculous growth of executive pay, primarily in the form of stock and stock options, gave executives a personal incentive to boost their share prices as soon as possible. Boards of directors, who also largely paid themselves in stock, turned their backs on their obstensible duties to protect shareholders' long-term interests to bolster their own short-term interests.

There were many economists who railed against these conflicts of interest and urged the SEC and Congress to pass new regulations regarding the nature of executive pay and how publicly traded companies were to be governed. But, with the economy appearing to continue to grow robustly, the federal government saw no need to rock the boat. Hell, stock prices grew substantially for 16 of the 18 years between 1982 and 1999 (IIRC, 87 and 90 were the only two down years for the Dow Jones average in that time), so The Market couldn't be wrong, right?

Presidents Reagan and Clinton essentially got a free pass for the way they allegedly handled the economy. All they really did was continue the charade of passing off a modestly growing economy as a tremendously growing economy and let their successors worry about it when it comes to reconcile Wall Street's figures with Main Street's. In addition to coming in at the end of a business cycle, both Bushes suffered tremendous external shocks that hurt the U.S. economy: the Iraqi invasion of Kuwait in 1990 that caused oil prices to double plagued the first Bush's economy; the hijackings gave the current economy a significant body blow. Neither President can be accurately blamed for these problems.

Am I claiming that the current president or his father is infallible? Absolutely not. But using him as a scapegoat for problems that have infected the entire public and private sectors does a disservice to the president and leads to the political squabbling that will slow down the necessary reforms to the economy. The older Bush was in office for four years; Reagan and Clinton lived in the White House for eight years. GWB has barely been in office for 18 months. Which presidents do you think have had the biggest opportunity to influence economic policy since 1981? And another thing to keep in mind: before he can act, the president often needs the consent of another government body -- Congress.

Before pointing the finger at anyone or anything for a problem like today's business fiascos, one must realize that it's not that simple. If there were one cause, then it would have already been dealt with and confidence would already be on its way back into our stock markets. Our entire financial system needs to be tweaked; if one person or group ends up taking the blame for an entire economy's faults, it will end up being an injustice to everyone in the United States.

Re:(Slightly OT) Bush's role in today's economy

[Zeinfeld]

I can't stand how many people claim that the political blame behind the Enron, WorldCom, and other fradulent companies' downfalls is solely that of President George W. Bush. I find that charge to be along the lines of claiming that Bush's foreign policy failures were the chief reason for last September's terrorist attacks.

You are putting up a straw man here. Nobody is saying that the people with most responsibility for the collapse of Enron, Worldcom and the rest were not the people who ran the companies and their accountant, Arthur Andersen.

However you do expect a President to be able to give a good speech. You do expect a President to make sound proposals for fixing problems. You do expect a President to not have been involved in the same type of corrupt accounting himself.

The problem with Bush is that he has failed on every count. His speech was excrutiating, hypocritical and contained only one concrete policy proposal. He failed to convince the audience that he understood the problem, let alone the solution.

Re:(Slightly OT) Bush's role in today's economy

[PD]

RE: problem not responsible for creating

You are quite correct in that most problems that affect the country are not the fault of the President.

However, our kiss ass politicians see fit to run on platforms such as "family values", "drug-free america", or "jobs for everybody". Obviously, these are feel good platforms. If two lesbians get married, nobody is going to blame a Republican president for a failure of his adminstration's family values policy. If Bob at the factory gets busted for smoking pot on his lunch break, the finger will NOT be pointed at the adminstration's drug free America policy. Politicians can gain but never lose by such posturing.

So, I don't feel a bit bad that someone is pointing the finger at a politician. He promised us good times, thinking that nobody would hold him accountable for bad times. Nobody is saying that he's the ONLY one responsible. But as the current President he's got to explain the actions of the government. He can't say "it's not my fault" because that's just an excuse. All that matters is how he fixes the problem.

YES! Four for four!

[rjh]

After graduating college I went to work at MCI, which was soon bought out by WorldCom. WorldCom is now in Chapter 11.

After leaving WorldCom I went to work for McLeodUSA, which soon declared Chapter 11.

After leaving McLeodUSA I went to work for Yomu, which declared Chapter 7.

After leaving Yomu, I went to work for PGP Security, which doesn't even exist anymore.

Score: four for four.

Y'know, most people would be proud of batting 1.000. So why do I feel vaguely embarassed, foolish and ashamed? :)

Re:It was the fraud, not the clueless business pla

[G-funk]

So after Bush gets into the Whitehouse by promising to run the country like a business we suddenly discover how many of the businesses are being run.

I thought bush got into the whitehouse by counting votes the way many of the businesses are being run?

Re:It was the fraud, not the clueless business pla

[Zeinfeld]

So after Bush gets into the Whitehouse by promising to run the country like a business we suddenly discover how many of the businesses are being run. So how is this a negative, the corporations didn't start cooking the books on election day.

You asked 'how is this a negative' when really what you are trying to ask is 'how is this his fault'.

The worldcom affair is not Bush's fault, however it is a negative because:

1. Make Bush CEO of USA Inc was his principal campaign theme

2. Bush is implicated in corrupt share deallings the full details of the SEC enquiry have yet to be released, but it is already apparent that Bush had signed a lockup agreement promising not to sell the shares at the time he sold. If Bush knew that the share sale that had caused the lockup had had to be cancelled because of the state of the company he was trading on insider information.

3. Chenney and White The VP and the secretary of state for the army are implicated in major corruption scandals.

4. Bush's hypocrisy a day after failling to accept responsibility for his own actions the president takes it upon himself to call on CEOs to do just that.

5. Fuzzy math was used to justify the Tax cut. The books at Enron and Worldcom were not cooked to half the extent that Bush and Co cooked the budget to get the Tax Cut for his rich friends through.

6. The corrupt corporations were run by Republicans with strong links to senior republicans Kenneth Lay was famously a friend of GWB and lent his corporate jet for his campaign. Worldcom was run by Bernie Ebbers who was one of Trent Lott's principal campaign contributors.

So yes, while Worldcom is not the fault of the President it makes people a lot more aware of his shortcommings and is therefore quite justifiably a negative for him.

Re:YES! Four for four!

[BJH]

Please, go get a job at Microsoft.

Re:YES! Four for four!

[nizo]

Where do you work now, and are they publically traded so I can short their stock?

Re:Too much debt..

[King Babar]

In other words chap 11 basically lets you strip off all the debt (or a huge percentage of it). It also lets you out of any long term contracts (to buy or sell!) that you didn't like, makes it easier to fire people. Oh, and they can "un lease" a building by taking all their stuff out of it and saying "no, were are not paying" to the landlord.

So "too much debt" is no longer WCOMs problem. It is the problem of banks that loaned money, and supplyers that sent goods on purchase orders.

Companies operating under chapter 11 do enjoy many interesting abilities, but the key aspect of the filing is the re-organization plan, which has to be agreed to by the creditors. This is not always an easy thing to arrange, and at some point creditors (as a group or individually) are allowed to fill their own plans for the reorganization, or request outright liquidation of the firm (chapter 7). Furthermore, Worldcom is or will soon be operating under debtor-in-possession (DIP) financing, which might also place severe restrictions on what they will be allowed to do. This is *not* going to be pleasant for anybody, especially Worldcom. The story at this point is that the company thinks they can use debt service savings to repay the banks (who are first in line) and get the bondholders to take equity, but if I'm a bondholder in this deal, I think I would have to insist that they cancel the existing common stock at the very least, which I curiously have *not* seen mentioned yet. And it's not clear that the bondholders could not do better in an outright liquidation scenario. Plus, there is the amusing prospect of serious litigation and criminal proceedings throughtout... I really don't see how this could go as quickly as the current leadership at Worldcom thinks it will, but maybe they really do have all their ducks lined up this time. We shall see.