NEW YORK (CNN/Money) -
WorldCom, the nation's No. 2 long-distance phone company, filed for Chapter 11 bankruptcy protection late Sunday, nearly one month after it revealed that it had improperly booked $3.8 billion in expenses.
WorldCom, crushed by its $41 billion debt load, made its filing in the Southern District of New York. With $107 billion in assets, WorldCom's bankruptcy is the largest in United States history, dwarfing that of Enron Corp. The Houston-based energy trader listed $63.4 billion in assets when it filed Chapter 11 late last year. WorldCom's non-U.S. units were not included in the filing.
Bankruptcy had long been expected for WorldCom. Under Chapter 11, the company can continue to operate while it develops a reorganization plan. WorldCom last week lined up $2 billion in debtor-in-possession financing from Citigroup, J.P. Morgan and G.E. Capital that will allow it to operate while in bankruptcy.
That financing still must be approved by the bankruptcy court. WorldCom already has secured a $750 million commitment from its lenders. The additional funds will allow the company to satisfy obligations, including payment of new services, employee wages and other obligations.
The bankruptcy would have no immediate effect on its customers, according to statements from both the company and Michael Powell, chairman of the Federal Communications Commission.
"I want to assure the public that we do not believe this bankruptcy filing will lead to an immediate disruption of service to consumers or threaten the operation of WorldCom's Internet backbone facilities," Powell said. "This Commission stands ready to intervene in bankruptcy proceedings as necessary to ensure that the bankruptcy court is aware of and considers our public interest concerns."
WorldCom, which operates the world's largest Internet network, employs 60,000 people in 65 countries.
"We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity," CEO John Sidgmore stated. "We will emerge from Chapter 11 as quickly as possible and with our competitive spirit in tact."
The embattled telecom also said Sunday that it elected two members to its board: Nicholas deB. Katzenbach and Dennis R. Beresford. Katzenbach is a former U.S. attorney general and former general counsel of IBM Corp. Beresford currently is a professor of accounting at the University of Georgia and a former chairman of the Financial Accounting Standards Board.
Katzenbach and Beresford will serve on a special investigative panel to review WorldCom's accounting practices.
From success story to disaster story
Clinton, Miss.-based WorldCom (WCOME: Research, Estimates) has teetered on the verge of bankruptcy since revealing on June 25 that it had incorrectly accounted for $3.8 billion in operating expenses. The admission cast WorldCom into the top tier of scandal-ridden companies alongside Tyco International, Global Crossing, Adelphia Communications and, of course, Enron.
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WorldCom's fortunes began declining in late 1999 when businesses slashed spending on telecom services and equipment. In April, CEO Bernie Ebbers resigned when questions arose about $366 million in his personal loans from the company. Ebbers entered the long-distance telephone business in 1983 with a Jackson, Miss., company known as LDDS.
He grew the company through a series of acquisitions and changed its name to WorldCom in 1995. In 1998, he bought MCI, the nation's No. 2 long-distance provider behind AT&T Corp. (T: Research, Estimates), for $37 billion.
WorldCom had been seen as one of the success stories of the 1990s. Three years ago the company used its lofty stock price to make a bid for competitor Sprint Corp. in a $129 billion deal. But regulators blocked the deal and a softening market for telecom services weakened the company's performance.
The Chapter 11 filing will provide WorldCom with some relief. The company has struggled with its $41 billion in debt, $24 billion of which is in bonds. Once its problems came to light in June, many of its banks refused to provide the company with any more money, unless it was secured with WorldCom assets.
WorldCom's creditors are estimated at more than 1,000, according to the bankruptcy filing. Included in the top 50 are J.P Morgan Chase, Citibank, Goldman Sachs and Credit Suisse First Boston.