Nortel Networks Files for Chapter 11 Protection - January 14, 2009

Has North America’s largest maker of telecom equipment seen the beginning of the end? In a report out of Toronto today, Nortel Networks Corp. (NT), announced this morning that the company has filed for bankruptcy protection in the U.S. as continuing economic pitfalls has hampered the company’s bottom-line for some time now.

In a filing of Chapter 11 protection in a Delaware district court, Nortel, and a number of their affiliates, made their claims the day before the company was set to make a $107M interest payment on the debt they owe.

Today’s filing could be attributed to the company’s debt of nearly $4B to bondholders that are represented by the Bank of New York Mellon. Never really recouping from the dot.com collapse in the earlier part of the decade, Nortel was once Canada’s largest company.

"Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse," stated Duncan Stewart, an analyst at DSAM Consulting in Toronto. "Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern," Stewart added.

During the last quarterly report, the company reported a loss of $3.4B as revenues plunged more than 14% during their 3rd quarter. In order to offset some of those losses, Nortel reduced their workforce by 2,100 jobs in North America, along with an additional 1,000 positions throughout other countries.

“Nortel must be put on a sound financial footing once and for all,” Mike Zafirovski, Nortel’s chief executive, said in a statement. “These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be.”

Nortel, which does business in 150 countries with more than 30,000 employees, draws its history back to 1882, when it was known as the mechanical department of Bell Telephone Canada. In the years and decades to follow, it was later known as Northern Electric and Northern Telecom before changing its name in 1999 to Nortel Networks Corporation.

In a sad twist of fate, Nortel was recently named the official network supplier of the Vancouver 2010 Olympics, along with being named in a partnership for the London 2012 Olympic to provide network communication equipment.

In more disappointing news, the New York Stock Exchange (NYSE) sent Nortel a letter of notification last month that the company’s stock (NT) was on the brink of being delisted from their exchange. The reason came from the stock’s price not meeting the minimum price of $1.00 per share for 30 consecutive days.

With the company filing for Chapter 11 this morning, shares of NT plummeted more than 77% in pre-market trading before trading was halted on the stock. As it currently stands, shares of NT is valued at $0.07 per share, a far cry from its 52-week high of $13.71 set a year ago, and an even further cry from its all-time high of $890 per share set back in July of 2000, right before the explosion of the tech bubble.

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