Thompson: Bankruptcy Protection Plans Premature

By Mark Evans | Published: December 10, 2008

National Bank analyst Kris Thompson suggests the possibility of Nortel filing for bankruptcy protection is premature right now.

With a $1-billion bond not coming due until July 20011, Thompson expects Nortel will end 2009 with $1.4-billion in cash.

“With no short-term debt obligations and the possibility that Nortel can successfully restructure, we would not expect CCAA as a near-term consideration by the company,” he said in a research note.

If anyone has access to Thompson’s report, it would be great if you wanted to pass it along.

More: S&P analyst Ari Bensinger said while Nortel has no major debt obligations until 2011, the “forecast for $1 billion in negative cash flow and $1.5 billion in working capital requirements for 2009, NT has little buffer room to fund operations”.

Sources: National Post, BusinessWeek

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  • exnt

    This is terrible news. I wonder who leaked the story to WSJ – the bankruptcy lawyers, a disgruntled Norteler, ..? The SEC may want to look into this as it is material confidential info that has changed Nortel's stock price. The equivalent of yelling fire in a crowded room.

  • joremero

    According to Z, the goal is to end 09 with a net cash flow, so with around 2.5 billion by the end of 09, which if successful, should keep the company running for an additional 18-24 months and hopefully have time for a recovery.

    This is why I don't see BK need right now, since nobody is chasing after NT to pay back any money (afaik)

  • joremero

    yes, this is very serious. We know that even a false rumor of BK can push a company towards it… specially true in financial institutions, not sure how it affects a company like NT

  • tonyrb

    Mark Twain was right. Let me summarize my perspective on what Nortel is doing to weather the storm .

    http://blog.tmcnet.com/the-hyperconnected-enter…

  • protosphere

    “Thompson expects Nortel will end 2009 with $1.4-billion in cash.”

    Can't defy the facts with more cash and time.
    The news is not getting better.

    I think trying to hide or downplay the fact they are researching bankruptcy is misleading to investors and customers.

    They lacked transparency following Q3 too:
    “Looking into 2009, we are not going to be providing revenue and operating margin guidance today
    We are not providing any guidance for 2009 at this point in time.
    at this point in time it would be inappropriate to make any views on 2009.”

    …seems pretty evident they either knew or should have at that time and saying so would have only driven away investors and customers even more.

    As for turnaround:
    “We will not be making any comments on any organic activities
    We are not going to make any specific comments on organic activities
    I won’t make any additional comments on organic potential activities.”

    To try the turnaround story yet again or address the government to nurn more money after the EDC already assists them as they export job, I guess there is no more paper to print and after already selling off so many assets in their inability to sell MENs, what's left…

    One analyst already expected them to be sold or severely restructured by Christmas. Researching folding leaves an other option for the not too distant future it seems, and the most inevitable one in quickening trend.

  • yes4aapl

    Jeremero and exnt
    Let me answer your concerns.
    It's not important who leaked the info to WSJ. Important thing is it's not a rumor.
    Bloomberg has much more details now who and how.
    Your 18-24 months is an overstatement.
    Nortel says 12 months and nobody believes that either.
    why?
    “As of Sept. 30, Nortel’s debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items.”
    http://www.bloomberg.com/apps/news?pid=2…
    1. If Nortel had cash for 12-18 months Nortel would not desperately look for selling the best assets.
    2. Pension deficit is as I said, about $3 bill and Nortel has to address that each year.
    3. and the easiest and most important, new orders! So far it adds to $2 bill lower orders for 2009!
    $400 mill in savings from Nov 10 plan will not be enough. It would mean that Nortel would lose $1.5 bill from operations; because Nortel business wasn't profitable. Losing $1.5 bill would require cash to finance the loss.
    Unknown at this time are
    Will selling assets trigger bonds covenants and will customers stop buying all at once because Nortel is on it's way to use BK.
    Let me quote Wapuka here (I don't know if he posted that here)
    ——
    All who have been talking about the potential for Nortel to enter in bankruptcy have been proven correct by the actions of Nortel's management team. A company does not undergo this exploratory process (and its high legal costs) without good reason. One does not see Microsoft undergoing such a process. This is not a simple fire drill. This is a very expensive process that examines all of Nortel's business operations, their potential results, all current and future obligations, identification of creditor standings and domiciles, debt caveats, legal pitfalls and liabilities, Nortel's legal standing in different jurisdictions, moves to shield assets, etc.

    Basically, the share holders are being told that their equity is worthless, something that I have stated for almost a year.
    Wapuka

  • http://nortelinsider.wordpress.com/ Desk Jockey

    We have seen a consistent pattern where the actual results were worse than what was projected by management or those most optimistic. With this history in mind, it is hard to believe that it is “business as usual” and that the optimistic predictions are correct.

    Don't get me wrong: I want to see Nortel succeed and survive, but given the nearly constant stream of bad news, which has gotten increasingly frequent in the past three months, it is hard to conjure up the proper mindset.

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  • http://www.bankruptcyhomeequity.net bankruptcy home equity

    I must question whether or not Nortel knows what they’re doing. Either they are trying to be optimistic about something that is pretty much completely negative or they are trying to calm down their investors, which I think would be wrong.. They should be honest about what’s going on.

  • http://www.duilawyerspot.com/ dui lawyer

    National Bank analyst Kris Thompson suggests the possibility of Nortel filing for bankruptcy protection is premature right now.

    i do not agree with you. it is evident that they will file any time now

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