TORONTO - Nortel Networks Corp. (TSX:NT) is insisting it is "a viable partner for the long term," after a report it has hired legal counsel to explore bankruptcy court protection from creditors.
Nortel shares plunged 28 per cent to a new low of 46 cents early Wednesday on the TSX, trading later in the day at 49.5 cents, down 14.5 cents or 23 per cent.
The Wall Street Journal, citing unnamed "people familiar with the situation," said the move was made in case the Toronto-headquartered telecommunications equipment maker's restructuring plan fails.
It quoted a Nortel spokesman as saying no bankruptcy filing is imminent but confirming that advisers have been hired to help chart a way forward.
The newspaper also said Nortel has been exploring the possibility of Canadian government financial assistance. A Nortel spokesman in Toronto said the company had no comment on that.
"There are those who fuel negative speculation, but there are many more who believe that Nortel has put in place the necessary plans to strengthen our financial footing and reset our cost base," the company said in a statement Wednesday morning in response to the story.
"Nortel is a viable partner for the long term. We have no debt maturity until 2011."
The company said that it is preserving and strengthening its capital position, and noted that last month it announced a plan to cut annual expenses by US$400 million.
"We remain focused on executing a significant shift to our operating model and cost base to reflect the economic environment that we are now in," it added.
Nortel cited a recent finding by debt-rating agency Standard & Poor's that the company "should be able to sustain adequate levels of liquidity in the next 12-18 months."
Standard & Poor's issued a release later in the day observing that Nortel held US$2.7 billion in cash at the end of the third quarter, against long-term debt of $4.5 billion.
"We note that no significant debt obligations are due until 2011, and that there are no specific maintenance covenants associated with the debt," commented S&P equity research analyst Ari Bensinger.
"However, with our forecast for $1 billion in negative cash flow and $1.5 billion in working capital requirements for '09, NT has little buffer room to fund operations."
Nortel shares have plummeted from a 52-week high of $17.37 last December after dismal earnings, news that the company is cutting 1,300 more jobs and slashing spending, and speculation that it isn't viable in the long run.
