The court hearing WorldCom Inc.'s Chapter 11 bankruptcy case has approved Bank of America's (BA's) request to apply some of the collapsed telecom giant's cash collateral to outstanding debts according to a court order.

The collateral is part of an investment account held in connection with a letter of credit (L/C) signed in 1996 by WorldCom. Money in the account is held under an agreement that entitles BA to move money out of the account to reimburse itself for any and all draws under that L/C.

Creditors

Judge Arthur J Gonzalez who signed the January 2003 order allowing BA apply the cash said "it does not appear that allowing [Bank of America] to liquidate the funds in the Investment Account would harm the interests of WorldCom's creditors."

New York court papers say that WorldCom on 5 February 2002 wired US$34.5 million to BA as cash collateral for the L/C. The bank additionally received on 24 April 2002 nearly US$2 million more cash collateral. At 17 December 2002, the principal amount of the L/C was US$34.5 million.

Bankruptcies

Crushed under a US$41 billion debt load, WorldCom filed for Chapter 11 bankruptcy protection in July 2002, nearly one month after it revealed that it had improperly booked US$3.9 billion in expenses.

With US$107 billion in assets, WorldCom's bankruptcy is the largest in US history, dwarfing that of Enron Corp. The Houston-based energy trader listed US$63.4 billion in assets when it filed for Chapter 11 in late 2001.

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