WorldCom Inc, accused of fraud for its accounting practices, may file the biggest bankruptcy in US history as early as Sunday to cope with creditors owed more than US$35 billion, people close to the situation said.
Chapter 11 would keep creditors at bay and suspend dozens of lawsuits as WorldCom tries to restructure its debts and negotiate a recovery. The Clinton, Mississippi-based company would be able to continue operating under existing management. WorldCom, with US$21.3 billion in 2001 sales, has more than 20 million customers and carries most of the US's Internet traffic.
The second biggest US long-distance phone company revealed in June it misreported US$3.9 billion in costs as capital investments, prompting the Securities and Exchange Commission to file fraud charges. The financial restatement triggered a US$2.65 billion loan default and led banks to cut off credit. Chief Financial Officer Scott Sullivan was fired.
WorldCom has arranged a US$2 billion bankruptcy credit line to help fund operations during a Chapter 11 reorganization, people familiar with the situation said. J.P. Morgan Chase & Co, Citigroup Inc and General Electric Co's GE Capital unit have agreed to provide the financing, which must be approved by a bankruptcy judge.
The case would be filed in US Bankruptcy Court in Manhattan, people said. The court permits bankruptcies to be filed electronically around the clock, including weekends. Enron Corp filed the largest Chapter 11 case in history there on Dec. 2, a Sunday.
WorldCom reported assets of US$103.9 billion in a May filing with the SEC, meaning it would eclipse Enron's record by more than US$40 billion.
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