S&P Maintains Hold on Nortel

Nortel Networks Corp. (NT) is down 20% on reports that it has sought legal counsel regarding bankruptcy protection, but the feeling on the Street is that Nortel isn't ready to throw in the towel.

In addition to Kris Thompson, analyst with National Bank Financial, who told his clients that it is premature to talk bankruptcy at this point, Standard & Poor's analyst Arie Besinger maintained his wait and see approach regarding Nortel and maintained his "hold" rating.

At issue for the analyst is Nortel's long-term debt of $4.5-billion in relation to its $2.7-billion cash position as of the third quarter.

Mr. Besinger said:

We note that no significant debt obligations are due until 2011, and that there are no specific maintenance covenants associated with the debt. Nortel targets C$400-million in savings from restructuring and plans to sell certain assets. However, with our forecast for C$1B in negative cash flow and C$1.5-billion in working capital requirements for 2009, Nortel has little buffer room to fund operations.