Nortel Files for Bankruptcy Amid Credit Squeeze
By Bob Van Voris and Joe Schneider
Jan. 14 (Bloomberg) -- Nortel Networks Corp., North America’s biggest maker of telephone equipment, filed for bankruptcy protection in a U.S. bankruptcy court.
Nortel, based in Toronto, had more than $1 billion in assets and debt, according to today’s Chapter 11 filing of its U.S. subsidiary in Wilmington, Delaware.
Nortel has lost almost $7 billion since Chief Executive Officer Mike Zafirovski took over in 2005, leaving him struggling for the funds to operate the company. Bank of New York Mellon was listed as Nortel’s largest unsecured creditor in its role as trustee on more than $3.8 billion in notes.
As of Sept. 30, Nortel’s debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items. The company has $1 billion in bonds that come due in 2011. Total liabilities amounted to almost $12 billion.
Zafirovski had sought to revive Nortel’s fortunes by cleaning up the balance sheet and reducing the workforce by 18 percent since he started. Demand for Nortel’s gear, mainly based on older code division multiple access technology, has waned as customers move to faster systems.
Money markets in the U.S. seized up following the Sept. 15 failure of the securities firm Lehman Brothers Holdings Inc. Banks stopped lending as they hoarded cash, pushing the country into a deeper recession. That’s making it more difficult, and more expensive, for companies like Nortel to find new financing.
The company could sell the CDMA unit to raise money, RBC analyst Mark Sue said in a report in November. The challenge is that too many asset sales may conflict with Nortel’s debt covenants, said Sue, who cut his target on the stock price to $0.