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The bankrupt telecom WorldCom Inc. and its major creditor groups unveiled a plan for the biggest Chapter 11 restructuring ever on Monday when the company filed its reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York. The company said that the plan had the support of senior bond groups representing more than 90 percent of all claims in terms of dollar amount. The plan would substantively consolidate the estates of WorldCom and its Intermedia subsidiary, but because WorldCom had not yet filed its disclosure statement some details about the proposal were not immediately clear. The company said it would file the disclosure statement with the court later Monday. Chief Executive Michael Capellas was also scheduled to address employees nationwide in a Webcast later Monday morning. WorldCom said it would request a May 19 hearing on the disclosure statement. It hopes to exit Chapter 11 protection later this year. Under the proposal, the reorganized company would have $3.5 billion to $4.5 billion in net debt, depending on how many creditors opt to receive bonds as part of their recoveries. Because WorldCom aims to have more than $1 billion in cash when it exits bankruptcy protection, that would mean that it could have up to $5.5 billion in gross debt. At roughly 1.5 times the company’s projected Ebitda, the leverage would be comparable to many telecoms according to one source. Aside from the financial reorganization, WorldCom also said that it will immediately adopt its MCI brand name, hire former Tenneco Inc. and Lyondell Chemical executive Robert T. Blakely as chief financial officer and move its headquarters from Clinton, Miss., to Ashburn, Va. WorldCom filed for bankruptcy protection in July, listing more than $107 billion in assets and $41 billion in debts. While Capellas might have preferred to have less debt on the reorganized company, many of WorldCom’s high-profile creditors are debt investors by nature and would probably favor bonds over stock, which could have made a straight debt for equity swap problematic. One WorldCom creditor also noted that the company might be able to structure the terms of the debt to make a takeover more difficult. Bondholders of the WorldCom holding company, with $24 billion in claims, are by far the largest group of creditors. The holding company also has about $2.6 billion in unsecured bank debt. The company’s MCI subsidiary has $2.6 billion in bonds, $750 million in preferred trust stock and about $1.4 billion in trade debt. The Intermedia Corp. subsidiary has about $1.2 billion in bonds and $574 million in preferred stock. The Intermedia subsidiary has a $5.7 billion intercompany note that WorldCom owes it. Akin Gump Strauss Hauer & Feld and Houlihan Lokey Howard & Zukin have advised the official committee of unsecured creditors. After an $80 billion write-down that dramatically reduced its depreciation charges, WorldCom posted $155 million in net income for January. In addition to slashing debt, the bankruptcy proceedings have allowed WorldCom to exit unfavorable contracts and leases, and many observers expect the company to remain profitable after it exits bankruptcy. “There is a very significant bull call you can make on the reemerged companies,” said Vik Grover of Kaufman Brothers, mentioning WorldCom, ICG, XO Communications and Global Crossing Ltd., which hopes to emerge soon. “They will have abnormally high returns because they’ve eliminated most of their debt.” Aside from its reducing debt expense, WorldCom may be able to improve its position by cost cuts. Since taking the helm, Capellas has outlined $2.5 billion in planned cuts that haven’t yet affected the company’s bottom line. One observer thought that Capellas could find at least another $1 billion in cuts. “With the debt jettisoned, these companies can start to talk about consolidation,” said Grover. “I think you’re going to see consolidation heat up, and that will make for a more rational industry, with better-capitalized strong competitors to the incumbents.” Copyright �2003 TDD, LLC. All rights reserved.

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