News

— Shares of Nortel Networks Corp. fell nearly 25 per cent Tuesday, two days before the struggling Canadian telecom equipment maker is due to make an interest payment of about $107-million (U.S.).

Nortel — North America's biggest maker of telephone gear — had about $2.3-billion in cash and cash equivalents at end of September, suggesting it would have no difficulty in making the debt payment.

Even so, Duncan Stewart, an analyst at DSAM Consulting in Toronto, said "the issue is not whether or not they can pay it. ... It's the idea of: if you know you're eventually going to default anyway, why not do it now and keep the ... interest payments you would have shelled out?"

A Nortel spokesman declined to comment on whether the company would make the payment. "It is our policy to not comment on our creditor obligations other than what we disclose in our public filings," he said.

Nortel's shares closed down 24.51 per cent at 38 cents (Canadian) on the Toronto Stock Exchange on Tuesday. In mid-2000, they were worth more than $1,100 each, adjusted for a stock consolidation that took place in late 2006.

RBC Capital Markets analyst Mark Sue has warned that bankruptcy is a "distinct possibility" for Toronto-based Nortel and that it could collapse under its debt load before 2011.

Last month, a media report said Nortel had sought legal advice on a bankruptcy-protection scenario in case its current restructuring plan fails.

Nortel's 10.75 per cent notes due in 2016 fell to 24.5 cents (U.S.) on the dollar Tuesday, yielding almost 50 per cent, according to MarketAxess data.

Nortel has faced intense competition from North American and European rivals such as Alcatel-Lucent, as well as low-cost Asian vendors such as Huawei Technologies. The company has also suffered as telecom companies scale back spending on the equipment that Nortel makes.

The global economic slowdown has exacerbated Nortel's problems, leading it to warn last month that because of current conditions, its business is under pressure and its cash and liquidity are deteriorating.

In November, it reported a $3.4-billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, about 5 per cent of its staff. It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.