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The devastated telecommunications company, which last week admitted accounting misdeeds involving USD3.85 billion in costs, said that it has now defaulted on two loans totalling USD4.25 billion. Some of its lenders have said they reserve their right to demand immediate repayment, but WorldCom Chief Executive John Sidgmore said these events were expected.
"We are engaged in discussions with lenders regarding replacement facilities and remain optimistic that our good working relationships will ultimately reach a positive resolution," Sidgmore said.
The company was also rebuked on Monday by the Securities and Exchange Commission, whose chairman Harvey Pitt said he was unsatisfied with WorldCom's statements in connection with the fraud. The SEC has filed a lawsuit against WorldCom, charging the company with securities fraud, and demanded details of events leading up to last week's news of the accounting irregularities.
The statement from WorldCom gives an outline sketch of how the transfer of costs was uncovered by an internal audit in mid-May. According to the statement, during internal meetings convened to investigate the matter, former WorldCom CFO Scott Sullivan defended the transfer of the costs "in light of economic conditions in 2001 and early 2002."
Sullivan said that due to the company's fall in revenues in the first quarter of 2002, he felt the transfers could no longer be supported, and had planned an appropriate writedown of the company's capital accounts during the second quarter of 2002. The auditors disagreed with Sullivan that a writedown would be appropriate; both Sullivan and David F. Myers, senior vice president and controller of the company, were notified that they would be fired if they did not resign.
WorldCom said the statement includes as much information as it has at this time, but Pitt called the statement "wholly inadequate and incomplete."
WorldCom is also facing a de-listing from the Nasdaq stock exchange because it has failed to comply with filing and fee requirements. The company's securities will be de-listed on Friday unless it requests a hearing.
On Monday shares in WorldCom traded for the first time since news of the accounting scandal broke last week. Virtually the entire value of the shares was erased, falling from USD0.83 to USD0.06 per share during trading.
It is now widely believed that WorldCom may need to file for bankruptcy protection to enable the company to re-organise if it is to survive as a going concern.
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