Now this is a tech wreck.
RBC Capital Markets tech analyst Mark Sue cut his target price on Nortel Networks to zero on Thursday. As in, “we think bankruptcy is a distinct possibility down the road.” How the mighty have fallen.
For all those searching for a bottom on this market, and taking a view that things just can't get worse for iconic Canadian companies, this report should come as a wake-up call. Nortel may need creditor protection to restructure, a move that would likely wipe out equity holders.
Mr. Sue flagged the fact that Nortel may soon join the automakers in banging on Ottawa's door for support. He said: “Without government intervention or major financial sponsors, Nortel may run of out cash before its $1-billion 2011 bonds mature.”
The spectre of restructuring, and even creditor protection, now hangs over a number of companies. Debts are coming due at a time when revenues are falling, and asset sales are difficult to execute.
Look past Nortel at pulp and paper company AbitibiBowater. This market leader also faces the daunting prospect of trying to sell units at the bottom of the cycle in order to raise cash.
The issue of how to pay down debt due in the next few years is undermining the share price of Teck and CanWest Global Communications. And at these two companies, there are dual-class shares that reflect family control. Those share structures will be an issue with lenders and potential investors if radical restructurings are required. The Peladeau clan lost control of Quebecor World when the printing company filed for creditor protection.
Further down the food chain, the outlook gets even more grim. Debt-dependent mid-tier energy and mining companies are simply shutting down projects.
Talk to corporate lenders these days, and there are dark mutterings about 2009 being an uglier year in the markets than 2008. The black mood reflects the fact that lenders are looking at companies such as Nortel, and reaching the same grim conclusions as RBC Capital Market's Mr. Sue.
