WorldCom in accord with some creditors Plan could speed up exit from bankruptcy

Lawyers for WorldCom said Tuesday that they had reached a tentative agreement with some of the company’s creditors that would resolve significant objections to its plan to emerge from bankruptcyunder the name MCI. After negotiations that stretched past midnight into Tuesday morning, a deal was struck that could greatly shorten the court’s review of WorldCom’s proposed reorganization plancalled a confirmation hearing and also speed up its emergence from bankruptcy afterward. Judge Arthur Gonzalez of U.S. Bankruptcy Court in New York City, presiding over the case, said that thehearing would resume Monday. We have an agreement in principle, Marcia Goldstein, a lawyer at Weil, Gotshal & Manges, which is representing WorldCom, told Gonzalez. The settlement amends thereorganization plan already presented by the company to change the way some creditors are treated. WorldCom would pay $353 million in cash and bonds to a group of investors who hold junior debt thatwas issued by the long-distance phone company MCI before WorldCom bought MCI. These investors would then pay $19 million, and another group of MCI creditors would pay $21.2 million to another groupthat had objected to the plan a group of hedge funds that bought some of the debts owed to MCI’s trade creditors. As a result, the group holding the MCI junior debt would get 44.5 cents for everydollar they are owed, and the trade creditors would recover about 52.7 cents on the dollar. Over all, WorldCom’s reorganization plan, which the company says has the support of most creditors eligibleto vote on it, would repay about 36 cents of each dollar owed to creditors. Perhaps most interesting, WorldCom also outlined a plan to compensate some lenders who had advanced cash to MCI before itwas acquired by WorldCom. Eligible creditors in this group would receive 60 cents on the dollar. The proposal responds to some MCI creditors’ arguments that MCI assets should not be used to paycreditors of other parts of WorldCom. One of the issues that has been in dispute is whether creditors of premerger MCI, creditors who loaned money to MCI prior to the merger with WorldCom, shouldreceive more money than the creditors of WorldCom, said Lori Fife, a partner at Weil, Gotshal. Because MCI was in better financial shape than WorldCom and because these MCI creditors were dealingonly with MCI, Fife said, the premerger MCI creditors felt entitled to recover more of their money. Gonzalez, whose approval will be required after the plan is presented to him in detail, sounded apositive note at the hearing Tuesday. The proposal as outlined appears to protect the rights of creditors, he said. If Tuesday’s amendments are approved, the deal may make it more difficult forcreditors who are not part of the settlement agreement to press objections against the reorganization plan as a whole. For example, there are additional companies that say they loaned money to MCI,not WorldCom, and so should receive a larger percentage of what they are owed. You have a group of similarly situated creditors who are being treated differently, and that violates the BankruptcyCode, said Richard Lorenzen, a lawyer at Brown & Bain, which is representing America West. His client and other objecting creditors will have a chance to make their arguments when the hearingresumes next week. Several lawyers Tuesday praised the efforts of Michael Capellas, WorldCom’s chief executive, in personally pushing the discussions forward in the lead-up to the agreement.