Nortel Enterprise chief: Our customers still need us

Attempts to reassure faithful after company seeks bankruptcy protection

It's business as usual as Nortel seeks bankruptcy protection from creditors, according to the company's enterprise chief.

Nortel said Wednesday it filed for Chapter 11 in U.S. bankruptcy court seeking creditor protection in the United States, Canada, Europe, the Middle East and Africa. The move comes as the company posted a string of disappointing quarterly results caused by weak demand for its products and lowered customer spending during the current global economic downturn.

The sales shortfalls came amid a series of restructuring efforts and management upheavals undertaken in an attempt to refocus Nortel after an accounting scandal knocked the company off course in 2004.

But enterprise customers should not be deterred, according to Enterprise Solutions President Joel Hackney, who prefers the term "creditor protection" to bankruptcy.

"The board of directors last night made the decision to…once and for all put some of the legacy burdens and costs surrounding the company to bed, and put the company on sound financial footing," Hackney says. "The debt load the company has been carrying, as well as the pension liabilities as a result of multiple acquisitions at high prices in boom time, as well as the current economic uncertainty has compounded what was a fragile capital structure for the corporation for some time.

"The filing allows us to address a large portion of those obligations while also maintaining the day-to-day operations and the support that our customers rely on for their own business," he says.

Nortel has US$2.4 billion in cash, which is "sufficient liquidity," Hackney says, to run operations and rework the capital structure of the company. Nortel's filing comes the same week it had a $107 million bond payment due.

Going into creditor protection with that amount of cash sustains product flow and support, Hackney says

"We're confident it's the fastest, most effective means to ensure not only operational support but the R&D commitments we've made," Hackney says. "So this really…allows us to continue day-to-day operations."

Hackney says he had already talked to more than eight large customers Wednesday and that they understand the company's rationale for the filing. He says he assured them that Nortel is in business, will continue to support them, and is committed to emerging from Chapter 11 "more focused and with a much stronger balance sheet."

Hackney says customers are still committed to Nortel and are relying on its successful emergence from Chapter 11. (Read a letter from Nortel's CEO.)

"They need us, first and foremost," he says. "These are savvy business guys and they understand the economic environment, and they also understand capital structure doesn't translate into day-to-day operational change."

"They're glad we're doing this when we have $2.4 billion in cash and not waiting until a moment where we're putting the customer base at risk."

Hackney says no customers have asked if Nortel is shopping the Enterprise Solutions business around – like it is its Metro Ethernet Networks and, reportedly, its Carrier businesses – and have not mentioned plans to consider alternative suppliers.

"The goal of this plan is to strengthen our commitment to customers, not weaken it," Hackney says.

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