Crunch time as Nortel files for bankruptcy protection

Posted by Chris Garland Tuesday, January 20th, 2009

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Canadian telecoms-network provider Nortel, which last week filed for Chapter 11 bankruptcy protection in the US, faces an uphill struggle to survive amid worsening economic gloom and plummeting revenues.

If Nortel goes under, it would be the first hi-tech company to file for bankruptcy following the global credit crunch, precipitated by the US sub-prime mortgage debacle.

It remains to be seen whether Nortel can survive although the effects of ‘toxic’ derivatives on the high-tech sector may yet be felt in the form of fewer credit lines as banks seek to reduce their risk exposure.

It’s also far from certain that Nortel represents an attractive purchase to any of its peers.

Inevitably, operators are spending less with efforts to make savings wherever they can, leaving Nortel vulnerable to acquisition by a rival such as China’s Huawei which would seem to the likeliest candidate for such a move, although US-based Verizon may yet be considering a bid, with an eye toward LTE vendor selection.

The beleaguered network equipment provider, which owes the Bank of New York Mellon alone nearly US$4 billion, claimed in December it was seeking to “chart a way forward,” but it would appear that few options are available besides seeking protection from the government.

Nortel, which filed for bankruptcy protection in Delaware last week before it was due to make an interest payment of about US$107 million, recorded a loss of C$3.41 billion (US$2.73 billion) in the last quarter, or C$6.85 per share, on C$2.32 billion in revenue.