MCI and the two principal objectors to its reorganisation plan have reached a settlement agreement, removing an obstacle that could have complicated MCI's quest for ratification of its plan for emerging from Chapter 11 bankruptcy.
The settlement proposes payment of 44.5 cents on the dollar to holders of securities in MCI called QUIPS (quarterly income preferred securities), for total consideration in cash and notes of $334m (£210m). Under MCI's initial reorganisation plan, QUIPS holders would have received nothing.
The settlement agreement also increases the compensation to be awarded to holders of MCI trade claims, who will now receive 52.7 cents for each dollar owed.
The agreement must still be approved by various groups involved in the bankruptcy, but representatives from MCI and the organisations representing the QUIPS holders and trade claims owners said they do not expect complications in obtaining those approvals.
"This is obviously a huge move on the part of the company. It is my understanding that there were fairly large inter-creditor issues due in part to complex inter-company debt," said Claude Montgomery, partner in the global bankruptcy group of law firm Salans in New York.
MCI still faces objections to the plan from several other creditors, but the company's attorney Joseph Allerhand said he hopes those can be quickly resolved.
"The process and path to confirmation has been significantly streamlined," he said.
According to Montgomery, it is unlikely that smaller creditors would to seek to derail the hearing.
MCI, still legally WorldCom, is trying to emerge from the bankruptcy that followed its disclosure of widespread accounting fraud totaling $11bn (£6.9bn). While the company hopes to move out of bankruptcy within the next few months, several of its former executives remain enmeshed in criminal prosecutions for their roles in the company's collapse.
Stacy Cowley and Laura Rohde write for IDG News Service