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Creditors of WorldCom Inc. interviewed three law firms Monday in an effort to select a legal representative to handle negotiations with the beleaguered telecommunications provider. Sources said the New York-based firm Milbank, Tweed, Hadley & McCloy was in close contention for the assignment with Dallas’ Akin, Gump, Strauss, Hauer & Feld. Also in the mix, sources said, was the Chicago-based firm Kirkland & Ellis. The creditor groups, which hold a substantial portion of WorldCom’s more than $30 billion in bond debt, read like a who’s who of large institutional investors. Among the 22 creditor firms interviewing lawyers were Fidelity Investments, Franklin Templeton Investments, Metropolitan Life Insurance Co., Oak Tree Capital Management, Cerberus Capital Management, AIG Global Investment Group and Putnam Investments. Eventually, bondholders are likely to form three groups split along the lines of WorldCom and its subsidiaries. Sources said informal committees were coalescing among creditors holding bonds in WorldCom and units MCI Communications Inc. and Intermedia Communications Inc. WorldCom acquired MCI in September 1998 for $49 billion and purchased Intermedia in July 2001 for $3.8 billion. Citigroup Inc. and Deutsche Bank AG were chosen last week to head a committee of banks that loaned WorldCom $2.65 billion and are likely to be involved in raising additional funds for the beleaguered telecom. WorldCom revealed last week that it hired New York’s Weil, Gotshal & Manges as legal representative, and sources said the company is interviewing a financial adviser for a comprehensive restructuring. In a sign that WorldCom is more and more likely to file for bankruptcy, the company told the Securities Exchange Commission Monday that an internal investigation into its past financial filings may uncover accounting errors in addition to the $3.8 billion in fabricated cash flow revealed last week. In particular, WorldCom said in a letter to the SEC that “questions have been raised” by its own audit committee about whether the company booked reserves to mask operating losses. The company offered no details about the size of the potential error. The company admitted June 25 that it booked billions of dollars in operating expenses as capital expenditures. In its letter to the SEC, WorldCom said it had defaulted on more than $4 billion in credit facilities and could be delisted from the Nasdaq as soon as Friday. WorldCom could maintain its listing if it seeks a hearing with the exchange. Last week, the SEC filed civil fraud charges against WorldCom and later ordered the company to submit a restated earnings report by the opening of stock markets Monday. In the filing, WorldCom also said its bank lenders terminated the company’s $1.5 billion accounts receivable securitization program. As a result, WorldCom must pay the banks $1.2 billion in amounts outstanding. The flurry of activity is a precursor to an eventual bankruptcy filing, said Edward Paik, portfolio manager of the Liberty Utilities Fund. “These filings are somewhat irrelevant to where this stock and this company are going, which is bankruptcy,” Paik said. “At this point, it’s weeks if not days away.” Copyright (c)2002 TDD, LLC. All rights reserved.

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