News from Reuters

Nortel mum on interest payment due this week

13/01/09

By Wojtek Dabrowski

TORONTO (Reuters) - Nortel Networks Corp has a $107 million interest payment due on Thursday, but the struggling Canadian telecom equipment maker is declining to say whether it will make the payment.

"It is our policy to not comment on our creditor obligations other than what we disclose in our public filings," a company spokesman said on Tuesday when asked if the payment will be made.

Nortel's shares were down 13.7 percent at 44 Canadian cents on the Toronto Stock Exchange on Tuesday afternoon. In mid-2000, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.

Nortel -- North America's biggest maker of telephone gear -- had about $2.3 billion in cash and cash equivalents as of the end of September, which suggests it wouldn't have difficulties making a $107 million interest payment.

However, Duncan Stewart, an analyst at DSAM Consulting in Toronto, said "the issue is not whether or not they can pay it.

"It's the idea of: if you know you're eventually going to default anyway, why not do it now and keep the ... interest payments you would have shelled out?"

RBC Capital Markets analyst Mark Sue has warned that bankruptcy is a "distinct possibility" for Toronto-based Nortel and that it could collapse under its debt load before 2011.

Last month, a media report said Nortel had sought legal advice on a bankruptcy protection scenario in case its current restructuring plan fails.

Nortel's 10.75 percent notes due in 2016 fell to 24.5 cents on the dollar on Tuesday, yielding almost 50 percent, according to MarketAxess data.

Nortel has faced intense competition from North American and European rivals such as Alcatel-Lucent , as well as low-cost Asian vendors such as Huawei Technologies . The company has also suffered as telecom companies scale back spending on the equipment that Nortel makes.

The global economic slowdown has made Nortel's problems much larger, leading it to warn last month that because of current conditions, its business is under pressure and its cash and liquidity are deteriorating.

In November, it reported a $3.4 billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, about 5 percent of its staff. It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.

(Additional reporting by Walden Siew in New York)

($1=$1.23 Canadian)

(Reporting by Wojtek Dabrowski; editing by Peter Galloway)

© Reuters Limited. All Rights Reserved.
Reproduction or redistribution of Reuters content, including framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.