The hot news this afternoon is that Nortel has filed for Chapter 11 bankruptcy protection in the USA. This, as I recall, gives them a year to restructure their business under protection of the US Government without having to “worry” about action from creditors. There were  noises on the airways for some weeks regarding the company taking advice over Chapter 11. It goes to show there is no smoke without fire.

Nortel’s asset levels of around $1Bn are dwarfed by their liabilities of $12Bn. With debt due for repayment in 2011 they will have found it difficult to reschedule this debt under current market conditions. I understand that $107M was due tomorrow.

Speaking to staff at Nortel the whole company is affected and an interim “committee” has been appointed as an adviser to the board.

The biggest problem the company was facing, aside from the repayment of debt, was the funding of R&D moving forward. In particular in the enterprise and carrier VoIP space. The Metro Ethernet business, where Nortel is market leader but which is no longer core to their future VoIP plans, has been for sale for some time in order to provide working capital to fund R&D. I understand that some (unspecified) bits have been sold but a further announcement regarding this will be due in a couple of days.

Life is never boring. Nortel expects to come out of Chapter 11 as a new debt free entity. The brand is strong and the company itself is one of the oldest in the telephony business, if not the oldest. I can’t see it disappearing.

Bloomberg’s comment on the news is here.