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[January 14, 2009]
Nortel board considers future; reports say it could seek bankruptcy protection
(Canadian Press (delayed) Via Acquire Media NewsEdge) TORONTO _ Media reports say Nortel Networks Corp.'s (TSX:NT, NYSE:NT) board of directors gathered in Toronto on Tuesday night to assess the company's limited financial options, which may include bankruptcy protection.
The meetings come two days before the once mighty telecom firm is due to repay a $107-million interest debt on bonds.
Since the transaction would deplete Nortel's North American cash reserves by about 10 per cent, reports say the company is considering filing for bankruptcy protection as early as Wednesday.
Creditor protection would give the company more opportunities to explore restructuring options or sell off some of its assets.
But the move could also make the company more vulnerable by leaving it open to the possibility of a quick sale.
Nortel stock, which once traded at more than $1,200 a share, closed Tuesday at 38.5 cents a share.
Last month, it was reported that the company hired legal advisers to explore bankruptcy court protection from creditors, but Nortel said at the time that a filing was not imminent.
Nortel was once the most valuable company in Canada before the telecom bubble burst eight years ago. The company, which has shrunk to less than one-third its peak size, has failed to re-establish itself as a leading player in its industry.
Nortel shares have plunged in recent trading as investors speculated about the possibility of the company filing for court protection from creditors.
Under a CCAA restructuring the common shares of a company are often rendered worthless.
Nortel announced it would cut 1,300 more jobs and freeze salaries in November as it reported a multibillion-dollar quarterly loss amid "worsening economic
The telecommunications equipment maker, reporting in U.S. dollars, lost $3.41 billion or $6.85 per share in its latest quarter, compared with a profit of $27 million or five cents per share in the year-ago period.
Sales in the quarter totalled $2.32 billion, down from $2.71 billion a year ago.
In releasing the results, Nortel also suspended dividend payments to two series of preferred shares.
Late last month, DBRS downgraded its ratings on Nortel to CCC from B (low) and put a negative trend rating on the debt.
The debt rating agency was concerned at the time that Nortel's revenues could fall with reduced demand or the sale of product lines and that its restructuring
programs would not provide sufficient saving.
DBRS also raised concerns that working capital needs could escalate and pension plan contributions could grow.
Copyright ? 2009 The Canadian Press
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