Nortel Declares Bankruptcy
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Telecom equipment vendor Nortel Networks has filed for bankruptcy protection after reportedly missing a $107 million interest payment that was due today.
Trading in shares of the Canadian-based Nortel (NYSE/TSX: NT), which is listed on both the Toronto and New York stock exchanges, was halted following Nortel's announcement today.
Nortel is seeking protection from creditors under Chapter 11 of the U.S. Bankruptcy Code as well as the Companies' Creditors Arrangement Act ("CCAA") in Canada. The filing caps years of continuing losses as the embattled telecom vendor struggled to manage debt and emerge from an accounting scandal in recent years. According to a report in Canada's Globe and Mail newspaper, Nortel was due to pay a $107 million dollar interest payment today.
Nortel pledged to continue day-to-day operations while restructuring its business under bankruptcy protection. In a statement, it said the global financial crisis and recession compounded its existing financial challenges and directly impacted its ability to complete a restructuring that began in 2005. The company said it is taking this action now, with a $2.4 billion (unaudited) cash position, to preserve its liquidity and fund operations during the restructuring process.
"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," said Mike Zafirovski, Nortel's president and CEO, in a statement.
Zafirovski joined Nortel as part of its 2005 restructuring.
In addition to rebuilding its core business after the dot-com bubble burst in early 2000, Nortel also was struggling to put an accounting scandal behind it in recent years.
The current global recession hit Nortel hard. For the third quarter of 2008, the company reported a loss of $3.4 billion as well as the loss of its CTO John Roese.
Despite the troubled financial status of the company, Nortel has been pushing forward on some technology fronts. It rolled out new IPTV video technology at the end of 2008 to help capture part of that growing market.
Nortel's Metro Ethernet business has also been active, recently announcing a new milestone for 100 gigabit Ethernet (GbE)technology. Nortel claims it can run 100 GbE over a single optical wavelength, which is different than what competitors are able to do. Nortel has said it's considering selling off its Metro Ethernet business unit.
The bankruptcy filing for Nortel is perhaps the darkest chapter in the 100-plus year history of the company whose roots spring close to the birth of the telephone itself. Nortel was founded in 1895 in Canada as the Northern Electric and Manufacturing, barely 20 years after the telephone itself was first invented in 1874.