MCI, creditors strike deal

MCI today overcame one the final obstacles in navigating its precarious chapter 11 bankruptcy, coming to terms early this morning with the final group of creditors opposing its re-emergence plan.

Holders of almost $1 billion in securities and trade claims agreed to accept a deal that will give them 44.5 cents to 52.7 cents to the dollar on their investments, instead of the zilch that MCI’s original bankruptcy plan proposed. MCI presented the updated plan this morning to federal bankruptcy judge Arthur Gonzalez with no major objections from the former WorldCom’s major debt holders. The proceedings will resume on Thursday.

MCI said that the settlement was approved by it’s new board of directors this morning, and the committee of unsecured creditors representing the former WorldCom bondholders are expected to approve the deal later today.

“MCI has cleared one of the last major hurdles along its path toward emergence from Chapter 11,” CEO Michael D. Capellas said in a statement issued by MCI. “The 55,000 employees of MCI have worked hard to reach this significant milestone and we are pleased to have the support of the overwhelming majority if our creditors.”

The nod from WorldCom’s creditors could easily have the carrier out of bankruptcy before the holidays, much to the chagrin of its IXC and RBOC competitors. If the plan were approved as is, MCI would emerge with roughly $5 billion in debt, a fraction of the $41 billion that weighed downed its balance sheet before bankruptcy.

WorldCom has other problems to contend with though. Though the U.S. Justice Department has come to terms with WorldCom over the estimated $11 billion in accounting fraud, which originally drove the company into Chapter 11’s shelter, it faces possible criminal charges and lawsuits from the states attorneys generals.

Oklahoma’s Attorney General last month filed securities charges against MCI Corp. and six former executives, including former CEO Bernie Ebbers. While state criminal charges may not have too great an effect on the company’s emergence from bankruptcy, a new investigation that the Justice Department has opened at the behest of AT&T and other carriers could have severe consequences. AT&T, SBC Communications, Verizon Communications and other carriers have brought forth evidence that MCI manipulated the routing of long distance calls to avoid paying termination charges. The federal government has already suspended MCI from competing for new federal contracts pending the investigation. But charges or conviction could bar MCI from doing business with the U.S. Government, by far the carrier’s largest customer.