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WorldCom
Finances
Even
before the recent accounting disclosures, by 2001, WorldCom was
already going through financial turmoil due to large debt and declining
rates and revenue. Growth in the telecommunications industry was
slowing and the company had too much network capacity. The company
was deep in debt from an ambitious buying spree. There were also
the controversial $408 million loans to CEO Bernie Ebbers to cover
his margin calls on loans secured by company stock.
The accounting
irregularities were discovered by an MCI internal auditor during
a review of the books. The company then alerted the SEC.
WorldCom currently does not have the cash to pay the approximately
$5.75 billion in debt that will come due next year. It was originally
seeking a $5 billion loan package. Now they are looking to secure
$3b in loans. They hope that this loan plus cost cutting measures
will help it meet interest payments and delay bankruptcy.
A credit agreement between WorldCom and 26 banks was signed in July
2001. The company was to borrow, repay and borrow $2.65 billion
within a year. The banks claim that 6 weeks before revealing the
accounting disclosures, WorldCom told the lenders it was tapping
into the entire amounts. The banks say that if they had known the
true financial picture, they would not have extended the financing
without demanding collateral. WorldCom needs this money to cover
daily operations or will be faced with bankruptcy.
WorldCom also has $30 billion in bond debt. The market value of
the bond debt is currently about $4.5 billion. It lists $104 billion
in assets but the real value of the assets is probably much less.
Its market capitalization was once $120 billion in the summer of
1991. Currently it is close to $408 million. It has approximately
$40 billion in property, equipment, etc.
WorldCom's 2001 revenue was $35.2 billion. The projected free cash
flow for 2003 is only $1.25 billion. This does not take into the
account the loss of consumer and corporate business.
WorldCom does have valuable assets. It has the world's largest internet
backbone, thousands of profitable government contracts and 20 million
customers. IDT, a long distance carrier, has publicly offered $5
billion for WorldCom's MCI consumer and small business long distance.
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