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As had been expected for several months, Nortel Networks Ltd. has filed for Chapter 11 bankruptcy protection in the Delaware bankruptcy court. The move had been expected because, financial analysts said, if a company believes it will have to enter a reorganization process, it is best to do so with as much cash on hand as possible. Nortel (News - Alert) Networks also is filing in Canada and certain of the Company’s EMEA subsidiaries are expected to make filings in Europe as well.

 

As is typical for such proceedings, the move allows Nortel to continue in operation, though it will renegotiate all existing indebtedness. Nortel has lost almost $7 billion since Chief Executive Officer Mike Zafirovski took over in 2005. Bank of New York Mellon is listed in the filing as Nortel’s largest unsecured creditor in its role as trustee on more than $3.8 billion in notes.

 

TMCnet president Rich Tehrani will have more, straight from the proverbial horse’s mouth, after a call with Nortel today.

 

Sales have declined since Nortel sold its high-speed mobile-phone unit to Alcatel in 2006. As of Sept. 30, Nortel’s debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items. Total liabilities amount to almost $12 billion.

 

Nortel Networks said in its chapter 11 filing that it has more than 25,000 creditors and expects to make a distribution to those creditors that are unsecured. Nortel Networks Capital has more than 100 creditors owed $100 million to $500 million, according to court papers. Units of Singapore-based Flextronics International (News - Alert) Ltd. are owed more than $50 million.

 

Nortel says bankruptcy protection will allow it to begin a “comprehensive” restructuring to address current challenges and strengthen the firm’s long-term viability. “The company acted now because we have sufficient liquidity to both run our operations and restructure our business.”

 

“Nortel must be put on a sound financial footing once and for all,” says Nortel President and CEO Mike Zafirovski.

 

As TMCnet Group Managing Editor Erik Linask (News - Alert) reports today, the economic recession and a move toward software-based communications appear to have conspired against Nortel.

 

“Despite the continued growth of the telecom industry, the innovation spurred by new technologies has also created more of a focus on software-based communications services, which has the Software as a Service (SaaS) space booming,” Linask writes. “It is a natural progression as businesses increasingly look to cut costs and reduce infrastructure costs, unfortunately for those vendors that rely on equipment sales.”

 

The long-term picture is not clear. It appears Nortel’s sales have suffered amidst instability prompted, in part, by Nortel’s attempt to sell its Metro Ethernet Networks division. That appears to have raised service provider fears about Nortel’s long-term suitability as a supplier.

 

Nortel management may now attempt to sell off chunks of the company, including the Ethernet, carrier networks and enterprise divisions. Nokia Siemens Networks, Telefon AB LM Ericsson, Cisco Systems (News - Alert) Inc. and China’s Huawei Technologies Co. Ltd. are potential buyers.

 

Nortel competitors likely will benefit in the near term. Longer term, if assets are reshuffled, competition might be more fearsome, in the hands of focused new owners.