restructuring is looking sweeter than expected for creditors, but for now stockholders remain on the sidelines.

If the reorganization plan filed Monday passes muster with the U.S. Bankruptcy Court in Manhattan, the nation's second-largest long-distance company -- known until this morning as WorldCom -- will emerge from bankruptcy this fall. It will do so with about $5.5 billion in new debt and a new-stock value of about $25 per share, according to people familiar with the plan.

Of course, the road back to solvency won't take any detours for current shareholders. As is typical in a Chapter 11 case, MCI is expected to cancel the old shares when its transformation begins; existing WorldCom and MCI shares recently traded at around a dime. Most of the new stock in the company will be held by current creditors.

But given the company's quick makeover under new CEO Michael Capellas and the weakening competitive position of its rivals, many people in telecom are intrigued by the investment prospects of a rejiggered MCI come fall.


According to the plan, the emerged MCI will have a market cap of about $12 billion -- not including $1 billion in cash the company is expected to raise through a new bond offering.

Ironically, the new company value is only slightly more than the $11 billion or so in bogus accounting totals racked up under the previous management. Last summer's revelation of improper bookkeeping and misbooked expenses finally unmasked a company that was mired in red ink and unable to fund its operations and pay its creditors.

The company, now headquartered in Ashburn, Va., sought Chapter 11 protection last year with about $32 billion in outstanding debt. The terms of the restructuring are not final, but preliminary estimates say MCI bondholders will get about 80 cents per $1 of the bond's face value, and WorldCom bondholders will get close to 36 cents on the dollar. (WorldCom debt accounts for the lion's share of the outstanding amount.)

"That's slightly better than expected," said one New York-based bond analyst whose firm held positions in various WorldCom-related notes. According to the analyst, MCI bonds have recently been trading for about 75 cents on the dollar and WorldCom at 28 cents.

"The bonds aren't trading higher because there is still some uncertainty around the exchange and the whether the deal will really get done," says the bond analyst.

Trading Up

The restructuring plan also indicates that MCI will use some of its $1 billion in new cash to settle trade obligations with some of its various suppliers.

Investors and industry observers hold that when it emerges with its minimal debt, lower costs and broad array of services, MCI will post a formidable threat to peers such as


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. Each company seeks a larger piece of the lucrative business market.

AT&T and Sprint -- the two competitors that were best-positioned to capitalize on WorldCom's failure -- have proved to be largely unable to generate a windfall in new customer gains. The resilience MCI has demonstrated, despite having gained few new contracts of its own in the past year, may attract investors when the company resumes trading later this year.