Federal contractor WorldCom files largest bankruptcy in U.S. history

Telecommunications company and federal contractor WorldCom filed the largest bankruptcy proceeding in U.S. history Sunday night.

According to documents the company filed electronically with the U.S. Bankruptcy Court in New York, WorldCom now holds more than $107 billion in assets, far more than declared by Enron when it filed for Chapter 11 protection in December. At that time, Enron was the biggest U.S. bankruptcy in history.

Industry observers saw WorldCom's bankruptcy as inevitable after the company announced a $3.9 billion financial restatement last month. It comes amid reviews of the company's finances by the Securities and Exchange Commission and the General Services Administration, which could bar WorldCom from doing future business with the government.

A spokeswoman for GSA said WorldCom has told the agency that the bankruptcy won't affect the company's ability to serve its federal customers, which include almost every agency in the government. "WorldCom promises to fulfill its commitment to deliver high-quality services," the spokeswoman said.

The future of WorldCom's contracts remains uncertain, but given its current financial status, it is highly unlikely the firm would be in a position to win a government contract in the future. Last week, WorldCom lost the competition for a contract it held with the Federal Aviation Administration potentially worth $3.5 billion. And, according to news reports, the state of New Jersey fired the company from a contract this month and the state of Georgia took WorldCom out of competition for a $1.9 billion contract.

The next piece of major WorldCom federal business in limbo is the Defense Research and Engineering Network, a high-speed Internet network the Defense Department awarded to the company in April. Two rival firms, Sprint and Global Crossing, have protested that award, and Defense officials are at liberty to rescind it in the coming weeks. Global Crossing is now involved in its own bankruptcy proceedings.

But rescinding the contract might be difficult. According to a spokeswoman with the Defense Information Systems Agency, which must decide whether to terminate WorldCom, the contract is now considered an asset under federal bankruptcy laws. Therefore, any legal action, including firing the company, must be approved in bankruptcy court, she said.

WorldCom Chief Executive Officer John Sidgmore cast the bankruptcy in favorable tones. "Chapter 11 enables us to create the greatest possible value for our creditors, preserve jobs for our employees, continue to deliver top-quality service to our customers and maintain our role in America's national security," he said in a statement Monday.

Administration officials, including Defense Secretary Donald Rumsfeld, have scoffed at Sidgmore's assertion that WorldCom provides any national security service. However, the firm is a major supplier to the Defense Department and, until recently, played a leading role in support of the domestic air traffic control system. WorldCom also holds a seat on the National Security Telecommunications Advisory Committee, a high-profile board of chief executives from the nation's top technology firms, including Dell Computer Corp., Lockheed Martin and Raytheon that advises the president on implementing security policy and on emergency preparedness communication.