- The Washington Times - Tuesday, September 9, 2003

NEW YORK (AP) — MCI removed two of the thorniest obstacles remaining in its path from bankruptcy, agreeing to pay $353 million to silence some of the last vocal objectors to the scandal-ridden company’s plan to repay a small fraction of its $41 billion debt.

The deal early yesterday with two groups of creditors, brokered by MCI Chief Executive Officer Michael Capellas, was reached just hours before a scheduled hearing to consider the existing reorganization plan.

U.S. Bankruptcy Judge Arthur Gonzalez granted a request to adjourn until tomorrow afternoon to let the parties officially approve the agreement, and to revise the financial reorganization plan to reflect the new accord.

The vast majority of creditors had already signed on in favor of the existing plan, which would leave the former WorldCom Inc. with debts of $5 billion. Still, MCI was motivated to get more creditors on board so as to avert some courtroom mud-slinging and help speed the company’s return from bankruptcy.

As it is, MCI is struggling to restore its reputation amid ongoing federal and state investigations into an accounting fraud that fabricated $11 billion of profits, having renamed itself to help put the scandal in the past. Complicating the effort is a new probe into claims that MCI has been disguising long-distance calls to avoid paying fees owed to local phone companies that connect such calls.

The active involvement of Mr. Capellas in the negotiations was “an assessment that it would be in the best interests of the company not to have a contentious confirmation hearing,” said Marcia Goldstein, one of the lead bankruptcy attorneys for MCI.

“This streamlines the process tremendously,” Miss Goldstein said. “It eliminates the two most extensive objections” to the company’s plan to emerge from bankruptcy only a little more than a year after filing the biggest Chapter 11 failure in U.S. history.

According to the new deal, a small group of creditors that would have been snubbed entirely under the existing plan will now be paid 44.5 cents on the dollar.

Another small group of dissident creditors that was slated to be repaid 36 cents on the dollar for their claims will now receive 52.7 cents on the dollar.

Importantly, the deal also drew support from the major creditor groups who had already approved the existing reorganization plan and own the vast majority of the company’s debt.

Miss Goldstein also told the court that MCI is close to reaching an accord with another class of dissenting creditors and is pursuing discussions with other groups that object to the plan.

As it stands now, the hearing to consider the plan could conclude by mid-October, leaving the possibility that MCI could leave bankruptcy by the end of the year or in early 2004.

The deal calls for MCI to pay $188 million in cash and $165 million in new debt to the owners of $750 million worth of a riskier class of debt securities issued by the company prior to bankruptcy. That amounts to about 44.5 cents per dollar owed.


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