Nortel Exploring Bankruptcy-Court Protection

Nortel Networks Corp. (NT), is seeking legal advice to study a bankruptcy-court protection scenario in the event that its restructuring plan fails, the Wall Street Journal reported.

The Toronto-based company has also been exploring the possibility of getting assistance from the Canadian government. However, last week’s shut down of the Canadian parliament by Prime Minister Stephen Harper, is clouding those prospects.

From the Journal:

Ronald Alepian, a spokesman for Nortel, said that “no bankruptcy filing is imminent,” but added that the company has engaged several advisers to help it chart a way forward. “We remain focused on carrying out the restructuring we outlined on Nov. 10 to cut costs,” he said.

Nortel, Canada’s biggest maker of telephone equipment is currently facing significant liquidity concerns caused primarily by a sudden drop in contracts by U.S. carriers, prompting the company’s cash engine to choke off.

The Toronto-based Nortel burned through $478 million in cash during the first three quarters of this year, as sales of the co.’s CDMA technology diminished. Uncertainty surrounding the co.’s finances has obviously limited its ability to find new business. While Nortel has $2.6 billion in cash, the company is overwhelmed by a hefty cash burn rate and debt. In addition, the macro environment continues to deteriorate.

RBC Capital Markets analyst Mark Sue noted in November that Nortel began 2008 with $3.2-billion in cash but has had negative free cash flow of more than $600 million year-to-date. Sue also pointed out that the company faced significant liquidity concerns, with bankruptcy a distinct possibility before 2011.

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3 Comments on Nortel Exploring Bankruptcy-Court Protection

  1. A bit of perspective here.

    I’ve worked in the offices of the Chief Operations officers for some large companies for over 20 years so I know a thing or two about this subject. The one thing I can tell you is that it is pretty standard for any and ALL companies faced with a severe down turn in either their sales or the economy to look into their options when it comes to bankruptcy protection. Yes even investment companies. Given today’s environment that would include almost every major corporation out there to some degree. CEO’s need to completely view and understand the playing field and all their options way in advance including the possibility of seeking bankruptcy protection.

    What’s being touted as news here really isn’t. If you look closely right now you’ll see almost every large corporation brushing up or seeking legal advice on their options when it comes to this subject. Some have legal counsel on staff/retainer others need to engage legal counsel. Nortel’s situation is not unique and doesn’t indicate that Nortel will in fact file for bankruptcy. The company has enough cash on hand to whether 2 years of the downturn. Zafirovsky is doing what any good CEO in any large company is doing these days.

    When I read Mark Sue’s (RBC) analysis of Nortel I was shocked. I couldn’t understand how he could make the jump from Nortel having 2.5 B in cash on hand to Nortel being bankrupt. My first impression was that Mark was panicking or maybe was trying to panic others?

    While Nortel’s financial situation isn’t good, the financial facts don’t support automatically Mark’s panicked conclusion.

  2. I feel sorry for the shareholders, a lot of them forced into buying Nortel because Brokers and Money managers pushed it on their clients. “Nortel is THE tech company in Canada”. I can hear them saying things like that. The think is the strong, well managed companies survive and Nortel is not a strong company. Accounting problems, roll back, mismanagement, and now at .12! Let the company REST IN PEACE and we don’t have to hear another analyst opinion on Nortel.

    http://www.stockjunction.com/index.php?option=com_myblog&show=Nortel-A-Dog-With-Flees-Now-Terminal-Cancer-.html

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