<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=Content-Type content="text/html; charset=windows-1255"> <META content="MSHTML 6.00.2600.0" name=GENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=#ffffff> <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Bankruptcy cloud has silver lining for some </FONT></DIV> <DIV><FONT face=Arial size=2><BR></FONT>From the Financial Times</FONT></DIV></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>By Joshua Chaffin in New York <BR>Published: July 22 2002 1:12 | Last Updated: July 22 2002 1:12 <BR> <BR> <BR>WorldCom - a disaster to its shareholders and bank lenders - is now likely to prove a bonanza to its lawyers and bankruptcy advisers.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>After succumbing to the biggest bankruptcy in US corporate history, the troubled telecommunications company is expected to generate enormous fees for the specialist attorneys and investment bankers who will preside over its restructuring.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>"It looks like the job of a lifetime," said Alec Ostrow of Salomon, Green & Ostrow, a bankruptcy adviser. "When Enron filed last year, no-one expected there would be an even bigger bankruptcy within the next year."</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>The failed Houston energy trader has already paid about $70m to attorneys since December, according to filings, and is still considered in the early stages of its restructuring.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>WorldCom may not be as complex as Enron because it did not contain myriad off-balance sheet partnerships that issued their own notes to investors.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Nonetheless, determining what value remains and then dividing it among creditors will be an arduous task for WorldCom's bank advisers, Lazard, and its legal team from Weil Gotshal & Manges.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Not only is the company enormous, with assets strung around the world, but the $3.9bn accounting fraud that sealed its demise means that accountants will have to spend months scrubbing the company's numbers to verify them.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Further, WorldCom has various groups of creditors who will fight over the company's remains. These include bank lenders, vendors who supplied equipment and financing, and three groups of bondholders who hold debt issued by WorldCom and two other companies it acquired over the years, MCI and Intermedia.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>The skirmishing has already begun. Shareholders, who might otherwise be shut out, have filed lawsuits demanding some recovery on grounds of fraud.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Meanwhile, a group of banks tried unsuccessfully last week to freeze the company's assets in an attempt to recover some of a $2.65bn unsecured loan they have outstanding.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>They also failed to win special recognition from a New York court of the cash that remained from the loan so that they might later lay claim to it.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Bondholders, who have notes with $29bn in face value, have stridently opposed any manoeuvres that would vault the banks ahead of them in a reorganisation.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>The holders of the MCI and Intermedia notes are particularly concerned that banks will try to grab the subsidiaries' assets - among WorldCom's most valuable - to cover the parent company's debts.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>The three players that will have the most leverage in a restructuring are Citigroup, JP Morgan Chase and GE Capital. They supplied a pre-arranged $2bn debtor-in-possession loan to WorldCom to accompany its bankruptcy, making them its most senior creditors.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>WorldCom's suppliers will also be jockeying for position. They can receive preferential treatment on bills they sent to WorldCom before it filed if they can convince the court that they are "critical" to the company's ongoing operation.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Oddly, even as WorldCom has announced plans to lay off more than 17,000 workers, the company's bankruptcy could provide a windfall for some employees if they are included in retention schemes designed to keep essential personnel from fleeing.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Enron paid more than $100m in retention bonuses to a few hundred employees after its collapse.</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>While significant, it sill pales in comparison to the fees WorldCom's lawyers and bankers are likely to take home.<BR> <BR></FONT></DIV></BODY></HTML>