Can someone answer this Worldcom bankruptcy question to me?

Factual Questions
1

From MSNBC:

“One of the first things WorldCom will do now that it has filed will be to ask the bankruptcy-court judge to approve a $2 billion bank loan in the form of senior secured debtor-in-possession financing. WorldCom said Sunday it has secured $750 million of the $2 billion to use in the interim. One of the stipulations the banks made is that WorldCom hire a chief restructuring officer to shepherd WorldCom through what has the potential to be a daunting reorganization.”

I read this in the article on MSNBC that said Worldcom is filing bankruptcy.

My question is how can they possibly get approved for a $2 billion dollar loan when they are at the same time filing for bankruptcy? If I filed for bankruptcy I wouldn’t even be able to buy a $100K house for years.

How does this work?

2

I’m guessing this hypothetical you would be a high risk for little profit, whereas the Worldcom loan would be a risk with substantial profit potential.

Nothing devious about it, if the board and shareholders of the bank are informed of and approve of the loan.

3

WorldCom probably had enough in assets to cover the loan. Note it’s called “secured debtor-in-possession.” That means that the loans are first in line to get paid if the company breaks up. So if WorldCom is sold, all the assets will be sold off and the $2 billion goes right to the lender.

The lenders are also probably getting a higher than usual interest rate to do this.