WorldCom Inc has received preliminary court approval to go about its day-to-day operations, but the telecommunications company will be under intense scrutiny as it tries to emerge from the biggest bankruptcy in US history.
The Clinton, Mississippi-based company got permission from the US Bankruptcy Court in Manhattan Monday to spend US$2 billion in interim financing so that it can keep doing business.
US Bankruptcy Judge Arthur J. Gonzalez also approved the appointment of an independent investigator sought by the Justice Department to look into mismanagement, irregularities and fraud.
Attorney General John Ashcroft said an independent examiner "will provide transparency to the process" and increase public confidence in how the case is handled.
WorldCom filed for bankruptcy protection Sunday, less than a month after it was revealed that the long-distance company hid nearly US$4 billion in expenses through deceptive accounting. It is the biggest company to fall victim to scandal since the Enron Corp. debacle of last year.
WorldCom attorney Marcia Goldstein said the credit facility came from lead lenders: Citigroup Inc, JP Morgan Chase and GE Capital, a unit of General Electric Co.
"It was the best overall financing package that the company could obtain," said Goldstein.
The company will also pay US$45 million a month to its current workers and US$23.7 million in severance to the 5,100 laid off employees. They will receive dlrs 4,650 each.
Though such moves are routine in bankruptcies of this magnitude, the US. Trustee's request for an independent examiner underscored concerns about whether WorldCom's current management team represents a clean enough break from the past.
John Sidgmore, the company veteran who recently stepped in as chief executive, has come under scrutiny for his ability to steer the company out of scandal because he worked at high levels in the company amid the accounting scandal.
But Joe Galzarano, a telecommunications debt analyst for CIBC World Markets, argued that WorldCom's reorganization might go more smoothly with a company and industry veteran such as Sidgmore at the helm.
"Sidgmore hasn't been tarnished yet, and at this point, I believe WorldCom is such a large entity that they need someone in there that has a sense of what the organization is about," said Galzarano. "I think it's a difficult environment for someone new to come in."
Dave Peterson, an analyst for Fitch Ratings, agreed that "there's going to be a degree of mistrust and lack of faith in management's ability to execute. They have a long way to go in terms of building credibility with investors."
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