Wed, Jul 03, 2002 page12

• WorldCom extends probe back to 1999

  LONG DISTANCE Not only must the US-based telecom company repay a US$2.65 billion loan, it needs to also repay US$1.2 billion in loans backed by customer bills

  • BLOOMBERG
  • • 
    • 
    • 

  WorldCom Inc, charged with fraud for hiding more than a year of losses, is extending its accounting investigation as far back as 1999 and may be forced to repay a US$2.65 billion loan after defaulting on bank agreements.

  WorldCom, the second-biggest US long-distance telephone company, said in a statement that it also must repay US$1.2 billion in loans backed by customer bills. WorldCom became the first stock to trade more than a billion shares in one session following a three-day halt.

  

  WorldCom Inc founder Bernard Ebbers addresses the National Press Club in Washington in January. Ebbers, spoke Sunday to members of Easthaven Baptist Church in Brookhaven, Connecticut. He said he is no crook.

  PHOTO: AP

  The default may make it harder for WorldCom, with US$2.27 billion in cash and equivalents and US$30.2 billion in debt as of March, to avert a bankruptcy filing. WorldCom revealed late Tuesday that it fabricated profits for the past five quarters by disguising US$3.85 billion in costs. WorldCom is now investigating its accounting for liability reserves beginning in 1999.

  "WorldCom has an awful lot to answer for," said Carl Lawrence, managing director of Warwick Capital Management, an owner of 20,000 WorldCom shares. "I'm afraid that if the banks don't bail them out, they're going to go into bankruptcy."

  Last week, the US Securities and Exchange Commission filed a civil suit against WorldCom, claiming the company committed fraud by recording operating costs as capital expenses, hiding losses. The SEC ordered WorldCom to describe the events leading to the announcement that it would restate results for last year and the first quarter of this year.

  The company's report to the agency on its restatement of results today was "wholly inadequate and incomplete," SEC Chairman Harvey Pitt said in a statement.

  "It demonstrates a lack of commitment to full disclosure to investors and less than full cooperation with the SEC," he said.

  WorldCom spokesman Brad Burns said the company was "very surprised" by Pitt's comments.

  "Based on the order we received and conversation with SEC staff, we believe they were clear on what we would able to provide at this time. Our response was entirely in line, and is in fact a summary of what we know at this point," Burns said.

  WorldCom told the SEC on Monday that its audit committee is looking at "material reversals of reserve accounts" for 1999 and 2000. It wasn't more specific.

  WorldCom is in discussions with lenders on new financing, Chief Executive Officer John Sidgmore said in the statement. He wasn't more specific.

  The loan agreements that were violated include a US$1.6 billion unused credit line and the US$2.65 billion unsecured loan that WorldCom got in May. Unsecured claims don't come before those of other creditors. Lenders include JP Morgan Chase & Co, Bank of America Corp and Citigroup Inc.

  Standard & Poor's lowered its junk rating on WorldCom's long-term debt to "CC" from "CCC-." The credit-rating company cited "the high degree of uncertainty surrounding WorldCom's liquidity position and its ability to ultimately pay its outstanding debt."

  WorldCom shares fell US$0.77, or 93 percent, to US$0.06. The stock has dropped from a high of US$62 in June 1999, wiping out US$150 billion in value. At 1.5 billion shares traded, WorldCom broke its own record for daily volume. NASDAQ told WorldCom that its shares will be delisted on Friday.
• Most Popular

  • 1

    Taiwan shuts down as Krathon nears

  • 2

    Taipei mayor defends typhoon holiday declaration

  • 3

    Dozens of Taiwanese missing in China

  • 4

    Storm kills one, work canceled for second day

  • 5

    I took a common sense test — and my result appalled me