Nortel plans $2.5 billion sale of securities

Sales outlook still dim for maker of telephone equipment

stock falls 3%

May 14, 2002|By BLOOMBERG NEWS

BRAMPTON, Ontario - Nortel Networks Corp., North America's second-largest maker of telephone gear, said yesterday that it will file to sell up to $2.5 billion of securities as the unprofitable company's cash and sales decline. Nortel's stock fell 3 percent on concerns that the offering might dilute shares.

Nortel, which lost $25.6 billion in the past year and whose credit rating was cut to junk, is boosting the amount it might raise by $1.5 billion as demand for its equipment slumps.

Analysts said the filing is an indication that the company can't count on sales to rebound soon. Nortel might sell securities that can be converted into stock, they said.

The junk rating triggered a bank-line provision last month that gives creditors title to Nortel's assets in the event of bankruptcy, meaning that any new bonds won't be backed by assets, analysts said.

"This is just more bad news from Nortel," said Michael Cohen, who manages the Alpha Analytics Digital Future Fund and owns Nortel shares. "Even though it's obvious the company needed to raise cash, the shares would have been down no matter which capitalization strategy they chose, whether debt or equity."

Nortel said in a statement that the sale of securities might include common and preferred shares, along with debt and warrants to purchase equity or debt. The company will withdraw a registration filed with the Securities and Exchange Commission in 2000 for the sale of as much as $1 billion of debt securities and warrants.

Nortel's cash fell to $3.1 billion March 31 from $3.5 billion at the end of last year.

The company had $4.8 billion in debt at the end of the quarter, with $4.3 billion due in 2006 and beyond, spokesman David Chamberlin said. Capital spending is budgeted at $500 million to $700 million this year, down from $1.3 billion last year.

Chief Executive Officer Frank Dunn said last month that Nortel's cash and bank credit would be sufficient to fund operations.

"It raises questions about their credibility when they say they have liquidity and then go out the next week and do this," Kate Warne, an analyst with Edward Jones & Co., said of the planned filing. "The market is listening to that."

Nortel's share fell 8 cents yesterday to close at $2.62, after dropping to $2.29, a 12-year low. The stock is down from a high of $89 in July 2000.

The company said in April that it doesn't expect a "significant downturn or a significant upturn" in second-quarter sales compared with those in the first quarter, when sales fell 49 percent to $2.91 billion.

Nortel has shed businesses and almost half of its work force amid a slowdown in spending by phone companies. Nortel said in April that it planned to eliminate 3,000 more jobs after the first-quarter loss narrowed to $841 million and sales fell for the fifth straight quarter.

Nortel follows other telecommunications companies in selling securities to raise cash. In March, Lucent Technologies Inc., the largest U.S. maker of phone gear, sold $1.75 billion in convertible preferred shares, about 17 percent more than it planned. Sweden's Ericsson AB said last month that it plans to raise $2.9 billion in a share sale.

The company said it will file amended 2001 financial statements as a result of last month's credit downgrade. It said the statements will be unchanged except for the inclusion of supplemental data on the credit agreements and the new debt guarantees.

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