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By John W. Schoen Senior Producer
msnbc.com

Q: MCI [formerly WorldCom] goes into Chapter 11 after several questionable actions. They are now the object of a bidding war, AFTER they got rid of $35 BILLION in debt. Who lost? Who won? — Blair, Miami Shores, Fla.    

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A: The losers are pretty easy to identify. You can start with the nearly 30,000 employees who lost their jobs. Then there are the investors who lost their money and now hold worthless shares of WorldCom stock.

The losers list includes all those people who were owed money when the Worldcom hous of cards finally collapsed. Most of that $35 billion in debt represented corporate bonds that investors paid for expecting to get all their money back, plus interest. These investors got a little more warning than employees or shareholders.

Corporate bonds are rated for "creditworthiness" — the likelihood you'll get your money back — and these ratings fell steadily as the company's troubles unfolded, eventually drawing a "below investment grade" rating — also known as "junk bonds." You can buy them cheap and hope the company pulls out of its problems — if it does you can make a lot of money. So many of those who lost were speculators who knew what they were doing.

The list, however, also includes many others who were owed money — and who got burned. Anyone who sold MCI supplies, provided services on a contract basis, etc. became a creditor — and had to get in line once the company filed for bankruptcy. Most creditors are typically paid cents on the dollar for what they were owed.

As for the winners, they're a little harder to spot. The U.S. government is temporarily $750 million richer after the company agreed to pay that much in fines to settle fraud charges. That money will eventually be paid out to investors who were victims of the fraud. (If you think you're one of them, you can get more information on the payout on the SEC's Web site.)

But following the money trail for investor winners is not as easy. When a company successfully reorganizes under Chapter 11 bankruptcy protection, it usually issues "new stock" in the "new," reorganized company. Many of those shareholders are former debt holders who swapped their (now worthless) debt for shares. Based on the stock price at the end of this week, the company's stock is sworth about $5.4 billion — a fraction of the $35 billion originally owed creditors, many of whom have probably already sold their shares of "new stock."

But one group was clearly in the win column: The lawyers, accountants, and consultants who billed the company for a reported $800 million in fees while it slogged through bankruptcy reorganization. They got paid in cash.

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