WorldCom Gets More Financing

When you’re in the midst of the largest, and probably most scandal-ridden, bankruptcy proceeding in history, a little good news can go a long way.

Bankrupt carrier WorldCom Inc. (OTC: WCOEQ) certainly seems to be celebrating a U.S. bankruptcy judge’s decision today to approve an additional $350 million in debtor-in-possession (DIP) financing for the company. This second round of financing, which was approved by Judge Arthur Gonzales, brings the total amount of financing to $1.1 billion (see WorldCom Gets $1.1B Breathing Room).

“Any cash they can get is a big deal,” says Peter Cohan, an analyst with Peter S. Cohan & Associates. “It’s going to allow them to continue to operate and to preserve the value of the assets that are there.” However, he warns, how good the news is depends on what the terms of the deal are. “In general, DIP financing has pretty tough terms… [They’re] usually pretty lucrative for the banks.”

The total amount, which is meant to help WorldCom continue operating through its Chapter 11 restructuring period, is nearly $900 million short of the $2 billion the company expected it would need when it filed for bankruptcy on July 21 (see WorldCom Files for Bankruptcy).

The company’s bankruptcy attorney, Marcia Goldstein, reportedly stated earlier this month that WorldCom would not need as much financing as previously anticipated, since it has managed to amass about five times the cash it had in July.

“Today’s decision by the Court to approve our request for $1.1 billion DIP financing is another positive step in our plan to emerge from Chapter 11,” WorldCom CFO John S. Dubel said in a statement today. “It reflects that WorldCom is performing well in the market and that our cash position is better than expected.”

The fact that WorldCom can get by with less DIP financing is also good news, Cohan says. “You want enough so you can continue to operate, but not so much that you have to pay most of it back in fees,” he says. “It’s a balancing act.”

While companies in bankruptcy protection typically are able to improve their cash holdings, since they are relieved of a majority of their debt payments, some analysts doubt whether WorldCom’s cash position is a good as it claims it is. “That depends what the meaning of cash is,” i2 Partners LLC analyst Andrei Jezierski says. “A lot of that cash is subject to claims… [and] of course, we’re all still waiting for those restated numbers.”

Despite his skepticism, Jezierski agrees that today’s announcement is good news for WorldCom. “It shows that they haven’t hit some air-pocket on the revenue or cash-flow side,” he says. “It would suggest a certain degree of stability.”

— Eugénie Larson, Reporter, Light Reading
MrLight 12/4/2012 | 9:32:52 PM
re: WorldCom Gets More Financing Has anyone heard if the government is looking at the divestiture of Worldcom. This would be done by forcing Worldcom to spinoff of a few of their business units, like UUNET, on the public market and thus ensuring Worldcom would not have an unfair competitive advantage over the other carriers, like AT&T, that did not seek Chapter 11 protection once Worldcom emerges from Bankruptcy?

MrLight :-Q
BobbyMax 12/4/2012 | 9:32:15 PM
re: WorldCom Gets More Financing With millions of people losing money because of their investments it is very strange that World would make the following statement: WorldCom CFO John S. Dubel said GÇ£WorldCom is performing well in the market and that our cash position is better than expected.

It is ambigous phrases like "doing better than expected' than causes enormous confusion in the minds of investors. The false statements like this encorages investors to invest.

WorldCom should be liquidated and the proceeds return to the shareholders.
AAL5 12/4/2012 | 9:32:11 PM
re: WorldCom Gets More Financing
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