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A settlement guaranteeing that one of WorldCom Inc.’s fiercest critics will not object to its reorganization plan won approval in the U.S. Bankruptcy Court for the Southern District of New York on Tuesday with a modification to address concerns from a group of creditors. Verizon Communications and WorldCom, who have clashed in and out of court during the debtor’s reorganization, had disagreed over how much they owed each other. Before the settlement, Verizon asserted $790 million in claims against WorldCom. The debtor, which now does business as MCI, said it was owed $843 million. The agreement reduced Verizon’s claim to $436.5 million, and WorldCom’s to $376.5 million. Verizon gets the balance of $60 million, and the remaining debts will be offset. In return, Verizon agrees not to object to WorldCom’s reorganization plan. “Given the business pressures WorldCom confronts to quickly emerge from bankruptcy, time is a major consideration,” pleadings by the debtor’s counsel at Weil, Gotshal & Manges stated. By avoiding the risk of litigation, the settlement motion claimed, “creditors as well as the debtors’ customers are the direct beneficiaries.” Under the original settlement, Verizon was able to vote the full value of its claims in what is termed creditor class 6 under the debtor’s reorganization plan. The class, which includes mostly trade claims at the MCI group subsidiary, contains about $2.8 billion in total debt, meaning that Verizon would have held substantial voting power in the class. A group of distressed investors who purchased MCI trade claims, who also vote in class 6, called the settlement “manifestly unfair.” Verizon should not be able to vote $60 million of the claim, the dissenting group argued, because it was paid in full in cash. The remaining $376.5 million of Verizon’s debt should not be grouped with the unsecured claims, pleadings asserted, because it was being fully offset by amounts owed to WorldCom. In the revised deal approved by Judge Arthur Gonzalez, Verizon will not be able to vote in class 6, though exactly what voting rights the company may or may not have are not spelled out in the order. While Verizon has agreed not to object to WorldCom’s reorganization plan, the company continues to be an opponent out of court. Verizon’s general counsel William Barr, who was attorney general under President George H.W. Bush from 1991 to 1993, sent a letter late Monday to the head of the U.S. General Services Administration urging the government to suspend federal contracts with WorldCom. “MCI’s frauds go to the heart of its performance of its government contracts,” Barr wrote, citing assertions by AT&T Corp. that the bankrupt telecom funneled calls from government agencies, among other traffic, through Canada to improperly reduce its costs. AT&T leveled the accusations against WorldCom in an objection to WorldCom’s reorganization plan earlier Monday. Both AT&T’s filing and the letter from Verizon mentioned law enforcement investigations into WorldCom’s actions. WorldCom said Tuesday it has hired law firm Gibson, Dunn & Crutcher to head its review of its call routing and access fees. Senior vice president of government markets Jerry Edgerton said, “We are confident that all U.S. government secure calls on MCI networks have been handled properly. “Contrary to some of our competitors’ implications, secure government traffic travels over MCI’s network with a dedicated connection and encryption, not through gateways,” he added. “National security has not been compromised through our secure network.” In a response to the allegations of improper activities, WorldCom chairman and CEO Michael Capellas vowed, “We have a zero-tolerance policy and if any wrongdoing is discovered you can be certain that we will take appropriate action swiftly.” The House Committee on Energy and Commerce, chaired by Rep. Billy Tauzin of Louisiana, plans to hold a hearing on the charges in September. “Both chairman Tauzin and chairman [of the Subcommittee on Telecommunications and the Internet Fred] Upton, are deeply troubled by the allegations,” committee spokesman Ken Johnson said. “Clearly if the accusations are true, then someone has a lot of explaining to do.” Like Verizon, SBC Communications Inc. and BellSouth Corp. also have reached bankruptcy court settlements with WorldCom, which the court will hear Aug. 5. Pending approval, SBC will receive $68.2 million and BellSouth will pay $81 million. Copyright �2003 TDD, LLC. All rights reserved.

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