- bankruptcy - Canada - telecommunication - USA
AFP - Nortel Networks said Wednesday it filed for bankruptcy protection in the US and Canada in an effort by the once high-flying telecom giant to weather the financial crisis and restructure its debt.
Once Canada's largest company, Nortel has been struggling since the dot-com collapse and a shifting of the telecommunications landscape. It was facing a payment of some 107 million dollars in interest on its debt.
The company, one of the world's biggest makers of telecom equipment, said in a statement it would seek creditor protection under the Companies' Creditors Arrangement Act in Canada and the US bankruptcy code's Chapter 11.
"The company's normal day-to-day operations are expected to continue without interruption," Nortel said.
"Nortel remains 100 percent focused on serving customers worldwide through continued R&D (research and development) investments and support of its product portfolio to fulfill customer needs."
"Nortel must be put on a sound financial footing once and for all," said Nortel president and chief executive Mike Zafirovski 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.
"I am confident that the actions we're announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success."
The Canadian government said it was prepared to offer 30 million Canadian dollars (24 million US) in aid from its export program.
"The government of Canada appreciates the importance of the telecommunications industry to our economy and will continue to work with Nortel during its restructuring through Export Development Canada (EDC)," Industry Minister Tony Clement said in a statement.
Nortel said the filings came as its reorganization plan, begun in 2005, ran into problems as "the global financial crisis and recession have compounded Nortel's financial challenges and directly impacted its ability to complete this transformation."
Nortel said it was taking this action, with a 2.4 billion dollar cash position, "to preserve its liquidity and fund operations during the restructuring process."
A series of petitions filed in a Delaware US federal court included one from the parent Canadian firm that listed assets and liabilities both exceeding one billion dollars.
Nortel said it would make similar filings in European courts. It said affiliates in Asia, including LG Nortel and in the Caribbean and Latin America, as well as the Nortel Government Solutions business, were not included in the proceedings.
The company lost 3.4 billion US dollars in the third quarter as revenues fell 14 percent.
Last year, Nortel said it was slashing 2,100 jobs mostly in North America and would transfer another 1,000 jobs to lower-cost countries, following deep losses.
"Nortel has been hurt by a steep drop in orders from phone company clients," said analysts at Briefing.com.
John Ogg at 24/7 Wall Street said, "It is no secret that the company has been in more than trouble," and "has nothing but losses going for it, and faces what seems like endless losses ahead."
Ogg added that "the fallout that you will see from this" could hit other firms, especially Singapore-based electronics firm Flextronics.
In a separate statement, Flextronics CEO Mike McNamara said the firm "has been working to reduce its exposure to Nortel for some time now" and added that it "has organizationally aligned its operating and capital resources in such a way to mitigate the impact of business changes of any one customer."
Nortel, which does business in 150 countries and has some 30,000 employees, traces its history back to 1882 as the mechanical department of Bell Telephone Canada. It was later known as Northern Electric and Northern Telecom before changing its name in 1999 to Nortel Networks Corporation.