WorldCom's Lenders Consider
$3 Billion Secured Credit Line
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By SHAWN YOUNG and CARRICK MOLLENKAMP
Staff Reporters of THE WALL STREET JOURNAL
WorldCom Inc.'s lenders are considering providing the telecommunications company with a new $3 billion secured credit line, in the first
sign that WorldCom and its lenders have a specific dollar amount in mind to fund continuing operations.
But $2.65 billion of that new credit line would be committed to paying back WorldCom lenders who provided that amount in May, before
WorldCom disclosed improper accounting. That would leave WorldCom only $350 million, not nearly enough to cover further debt, of as
much as $3.1 billion, that the company must repay to bondholders next year.
"That is an issue that we're currently discussing with the banks," said Brad Burns, a spokesman for the Clinton, Miss., telecom company.
For the nearly 30 lenders that provided the $2.65 billion, a secured line would be welcome
news. If WorldCom were to default, the banks would have collateral to back up the loan. The
$2.65 billion that WorldCom originally borrowed was unsecured.
Tuesday, the company said it will know within three weeks whether it can obtain enough
financing to avoid filing for protection under Chapter 11 of the U.S. Bankruptcy Code. People
familiar with the situation said that three weeks is about the time it would take for lenders to
put together a debtor-in-possession financing plan that would coincide with a bankruptcy
protection filing.
WorldCom is pursuing several avenues of financing, including borrowing from traditional
lenders, such as banks, or from a nontraditional lender. Mr. Burns declined to provide details
on what the nontraditional avenue would entail.
Thursday, according to people familiar with the situation, WorldCom's lenders are expected to have another conference call. The lenders
have had several since June 25, when WorldCom acknowledged the $3.8 billion in improper accounting. The first several calls were held to
assess the situation and to discuss whether to provide WorldCom a new secured line.
After the announcement, the banks formed a nine-bank steering committee headed up by Citigroup Inc. and Deutsche Bank AG. Thursday's
conference call, though, is expected to be the first time a more formal list of options will be presented to all the banks involved.
WorldCom projects that it will have $1.25 billion from operations next year that could be used to repay debt, but the actual amount could be
lower if customers leave because of the company's precarious status.
The company, which had $35.2 billion in revenue in 2001, has about $30 billion in debt at a time when its core business is slipping, its debt
has been demoted to so-called junk status, and the banks and investors that provided capital in the past are wary of the accounting scandal.
The company said the investigation of its accounting is now going back to 1999. That probe is expected to focus on reserves the company
set aside for merger-related expenses.
A sign of just how well WorldCom and its lenders are getting along could come soon. On Monday, WorldCom faces a $71 million dividend
payment to owners of its MCI Group tracking stock. WorldCom established the stock last year to reflect the performance of its
consumer-phone business. In May, WorldCom said it planned to eliminate the stock to save money, though it said it would make the July 15
payment.
WorldCom could face resistance from its banks in making that payment. The banks may not be willing to let even a small amount of money
escape when $36 billion is owed to the banks and bondholders, according to people familiar with the situation. WorldCom is in default to
the banks, which could leave the door open for the banks to block the payment.
Mr. Burns, the spokesman, said WorldCom intends to make the payment.
Write to Shawn Young at shawn.young@wsj.com and Carrick Mollenkamp at carrick.mollenkamp@wsj.com |
