- WorldCom's bank lenders on Friday failed in an effort
to recover the $2.65bn they were owed by the troubled telecommunications
firm after a New York judge rejected their request to impose a temporary
restraining order against the company.
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- People familiar with the situation said the bank lenders,
which include Deutsche Bank and Citigroup, requested the order from the
New York State Supreme Court on Friday morning in a last-ditch effort to
recover at least some of the $2.65bn unsecured loan they have extended
to the company.
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- The banks are understood to have told the court that
the credit facility, which WorldCom drew down in May, had been given to
the company based on misleading financial information. WorldCom shocked
investors last month when it revealed it had hidden $3.9bn of expenses
since the beginning of 2001.
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- The banks' aggressive move, which bankruptcy experts
describe as highly unusual, suggests that talks between the two sides about
a further injection of funds into WorldCom have completely broken down.
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- It also further increases the likelihood that the company
will file for Chapter 11 bankruptcy in the near future. Such a bankruptcy
would be the largest in US corporate history. WorldCom is understood to
have retained Lazard, the independent investment bank that has a large
restructuring department, to prepare it for a bankruptcy filing.
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- The banking group, which comprises more than 20 lenders,
had offered to inject more cash into WorldCom if the company pledged its
assets as security for the existing $2.65bn facility.
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- In a sign of internal disagreements between WorldCom's
lenders, Citigroup on Friday is understood to have resigned from the informal
steering committee which was determining the banks' strategy with respect
to WorldCom.
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- WorldCom could not be reached for comment on Friday night.
Lazard, Citigroup and Deutsche Bank declined to comment.
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