Nortel Networks Seeks Bankruptcy Protection

Nortel Networks, the telephone equipment maker that was once Canada's largest company by market value, filed for bankruptcy protection yesterday after losses mounted and financing dried up amid a deepening recession.

The century-old company, North America's biggest maker of phone gear that was worth about $250 billion at its peak in 2000, fell victim to reduced spending by customers such as Verizon Communications and competition from Cisco Systems. The Toronto company filed for protection a day before a $107 million interest payment was due and was granted the shield by Ontario Superior Court yesterday.

Mike Zafirovski, Nortel's president and chief executive, came to the company in 2005, charged with turning around a business weighed down by a $3.2 billion accounting fraud and ensuing customer losses. Since he took over, however, the company's competitive position deteriorated further, losing almost $7 billion.

"It's the end of a saga," said Benoit Lalonde, vice president of fixed income at Laurentian Bank Securities.

Nortel's U.S. subsidiary filed for Chapter 11 protection in Wilmington, Del. Fourteen affiliates of Nortel's financing unit are seeking similar protection in Delaware. Five units filed for bankruptcy protection there under Chapter 15.

Nortel shares fell 24.5 percent to close at 30 cents in trading on the Toronto Stock Exchange. The shares have lost 99 percent in the past year. Trading in Nortel shares was suspended by the New York Stock Exchange.

Bank of New York Mellon was listed as Nortel's largest unsecured creditor in its role as trustee on more than $3.8 billion in notes. Export Development Canada, a government agency, is owed $186.7 million and will provide as much as $30 million in financing for 30 days to help Nortel restructure.

As of Sept. 30, Nortel's debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items. The company has $1 billion in bonds that come due in 2011. Total liabilities amounted to almost $12 billion, while cash stood at $2.3 billion.

Ontario Superior Judge Geoffrey Morawetz approved an order shielding Nortel from creditors and lawsuits while it attempts to restructure. The order is set to expire Feb. 13, although Nortel can request an extension.