Nortel board of directors vote to file bankruptcy

The Globe and Mail is reporting that the Nortel board of directors voted last night to file for bankruptcy protection. According to the Globe, Nortel will seek court approval for creditor protection this morning. It added that Nortel is burning though cash and will face tomorrow a $107 million USD interest payment as well as the expiration of a $750 million USD credit support facility from Export Development Canada.

The Globe continued that the bankruptcy court filing will come as a shock to Nortel bondholders who had expected Nortel to pay its debts this week and that Nortel stockholders will be wiped out. Finally, it concluded that Nortel will most likely be forced into a death spiral as it sells its Ethernet unit, carrier networks unit and enterprise division to pay down its $4.5 billion USD long-term debt under the supervision of a judge.

Updates on the Nortel Bankruptcy: Nortel President and CEO - Mike Zafirovski issues bankruptcy: Video message and letter Press release Court orders Nortel enterprise chief, Joel Hackney, speaks out on Nortel's: Creditor Protection View questions and answers regarding the Nortel bankruptcy filing. Nortel Bankruptcy: Customer FAQ Investor FAQ Partner FAQ Supplier FAQ Nortel Bankrupty Primers: Primer on CCAA/Chapter 11 Process Restructuring Timeline FAQ Role of the Monitor Monitor FAQ Gartner report on Nortel bankruptcy. View United States Nortel bankruptcy proofs of claims, documents, docket list and general information (documents and docket lists are at the top of the web page). View Canadian Nortel bankruptcy documents (court orders, monitor's reports and motion materials). Nortel employee severance payments frozen by the bankruptcy. Nortel Bankruptcy Filing Contact Information: Customers: 1-972-362-1855 Suppliers: 1-972-362-1856 Partners: 1-972-362-1855 Investors North America: 1-888-901-7286 Investors International: 1-905-863-6049 Pensioners/Former Employees: 1-800-676-4636, EMEA Call: 00800-8008-9009 (select option #7 for 'Express Routing Code,' then enter: 4531#) Industry Analysts: 1-408-802-1257 Media: 1-905-863-7407 General Questions North America: 1-800-4NORTEL General Questions EMEA: 00800-8008-9009 (select option #7 for 'Express Routing Code,' then enter: 4531#) Both the New York Stock Exchange and the Toronto Stock Exchange have halted trading of Nortel stock. Court enters order restricting trading in common shares of Nortel Networks Corporation (the case number for the bankruptcy action is 09-10138, questions for the company regarding the order may be directed to Peter Look, at 905-863-7000, or Lynn Egan, at 615-432-4000). New York Stock Exchange issues press release: NYSE Suspends Nortel Networks Corporation, Moves to Remove from the List Toronto Stock Exchange issues delisting review for Nortel Common Shares: NT Toronto Stock Exchange issues delisting review for Nortel Class A Preferred Shares: NTL.PR.F and NTL.PR.G Nortel stock chart:

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Regarding the Nortel bankruptcy filing, RBC Capital Markets Managing Director - Mark Sue notes:

"The filing preserves liquidity and will allow Nortel to use the cash to fund operations during restructuring. It is our understanding that Nortel bonds should be capable of a recovery value in the mid-20s. Further, in the case where there is no pension deficit to deal with in a restructuring, bond recoveries could be closer to 40%. Equity investors will remain last in line unfortunately and our price target on Nortel remains unchanged at $0. "The repercussions from the Nortel bankruptcy filing may be widespread with customers, partners, suppliers and others likely to feel a negative near term impact. Customers in particular may elect to pause spending overall as they re-evaluate their long-term vendor partner of choice. Contract manufacturers will also be negatively impacted as Nortel cuts orders and severs ties. From a component point of view, we expect disruptions in the supply chain as procurements changes occur over the next several quarters."

Sue added, "As with any industry landscape-changing event, there will be some long term winners as well as some losers. In our view, Nortel's market share may be dispersed amongst its other competitors in the carrier network market (Alcatel-Lucent, Cisco, Ericsson, Motorola, Nokia, Siemens, Huawei, ZTE, and NEC), its competitors in the unified communications market (Cisco, Avaya, and Siemens) and its competitors in the converged data market (Cisco, Juniper). We note that some of Nortel's customers already have programs in place to trade out Nortel's gear. Other beneficiaries include Ciena, Adtran and Tellabs. "Near term, Nortel will still operate as a going concern under Chapter 11 (bankruptcy protection) as it seeks protection from its creditors, which we anticipate will take some time. Challenges will occur near term with Nortel's channel partners, resellers, and component suppliers. In the supply chain, we look for a negative impact on: JDSU, OPLK, BKHM, etc. Flextronics, a strategic supplier to Nortel, will also be directly impacted as it gets approximately 8% of its revenues from Nortel. Celestica (CLS) manufactures wireless infrastructure products for NT and Sanmina (SANM) which owns factories where NT's products are assembled, are two other players that could be directly impacted by the Chapter 11 filing." Sue concluded, "Its weak balance sheet and the rapid cash burn were the ultimate undoing, rendering the common equity worthless at the end. Nortel never fully recovered from its accounting scandal and the credit crunch ultimately sealed its fate." List of Nortel debt in default: The Nortel bankruptcy filing has constituted an event of default in the indentures of certain Nortel debt obligations and has caused an automatic and immediate acceleration of the following $4.175 billion in debt outstanding (Nortel believes any efforts to enforce the below payment obligations will be stayed as a result of its bankruptcy filing):

$1 billion aggregate principal amount of floating rate senior notes due July 15, 2011 issued by Nortel Networks Limited and fully and unconditionally guaranteed by Nortel Networks Corporation and Nortel Networks Inc.
$575 million aggregate principal amount of 1.75% convertible senior notes due April 15, 2012 issued by Nortel Networks Corporation and fully and unconditionally guaranteed by Nortel Networks Limited and Nortel Networks Inc.
$550 million aggregate principal amount of 10.125% senior notes due July 15, 2013 issued by Nortel Networks Limited and fully and unconditionally guaranteed by Nortel Networks Corporation and Nortel Networks Inc.
$575 million aggregate principal amount of 2.125% convertible senior notes due April 15, 2014 issued by Nortel Networks Corporation and fully and unconditionally guaranteed by Nortel Networks Limited and Nortel Networks Inc.
$1,125 million aggregate principal amount of 10.750% senior notes due July 15, 2016 issued by Nortel Networks Limited and fully and unconditionally guaranteed by Nortel Networks Corporation and Nortel Networks Inc.
$200 million aggregate principal amount of 6.875% senior notes due September 1, 2023 issued by Nortel Networks Limited.
$150 million aggregate principal amount of 7.875% senior notes due June 15, 2026 issued by Nortel Networks Capital Corporation and fully and unconditionally guaranteed by Nortel Networks Limited.

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