Nortel is Exploring Bankruptcy

Nortel is Exploring Bankruptcy

By Joe Schneider and Katie Hoffmann

Nortel Networks Corp. fell as much as 29 percent in New York trading after the Wall Street Journal reported the phone-equipment maker is exploring a possible bankruptcy filing.

The company has no immediate plans to file for protection, and Nortel is focused on reducing expenses, spokesman Mohammed Nakhooda said today. Advisers will offer counsel on bankruptcy if Nortel’s reorganization fails, the Journal reported, citing people familiar with the matter.

Nortel, whose predecessor was founded more than a century ago, has lost 97 percent of its market value this year before today as customers reined in spending and switched to newer technology from Cisco Systems Inc. and other rivals. Nortel has lost almost $7 billion since Chief Executive Officer Mike Zafirovski took over in 2005, leaving him struggling for the funds to operate.

As of Sept. 30, Nortel’s debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items. The company, North America’s largest maker of phone equipment, has about $1 billion in bonds that come due in 2011.

Zafirovski, 55, 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.

“The reality is the cost restructuring pales in importance relative to the trajectory of the CDMA business in driving Nortel’s profitability,” said George Notter, a Jefferies & Co. analyst based in San Francisco. He recommends holding the stock and doesn’t own it. “It’s definitely a pretty ugly situation.”

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.