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Technology Stocks : Nortel Networks (NT) -- Ignore unavailable to you. Want to Upgrade?

To: Harry J. who wrote (12895)	6/4/2002 1:02:48 AM
From: sylvester80	Read Replies (1) \| Respond to of 14638

Nortel Going Back to the Convertible Well thestreet.com By Scott Moritz Senior Writer 06/03/2002 07:09 PM EDT Nortel's (NT:NYSE - news - commentary - research - analysis) on-again, off-again funding quest is back on in a big way. After claiming repeatedly in recent days that it has no immediate need for funding, Nortel said Monday afternoon that it would raise $800 million by selling stock and three-year convertible securities. With Nortel shares trading at around $2 and investors fleeing the telecom meltdown en masse, Wall Street will certainly be keeping an eye on the terms at which any deal goes down. Still, any move to raise cash will give Nortel a bit more leverage in its ongoing talks with creditors -- and the company can always use that. With the fundamental outlook in the network equipment business continuing to erode under the weight of spending cuts by the big telcos, Nortel and its rivals are increasingly under pressure to secure favorable terms sooner rather than later. Coverts The networking gearmaker will sell 150 million shares in a common stock offering, and in addition will offer a mandatory convertible security, which pays a dividend and automatically converts to common stock in three years. Cash-strapped telco suppliers including Motorola have issued mandatory convertibles over the last year to help raise money. Nortel's use of a convertible -- the second in a year -- underlines the drastic nature of the company's efforts stay afloat while cutting costs and shoring up its balance sheet. Nortel suggested last week that it may try to sell its optical component business to raise cash. Rival Lucent (LU:NYSE - news - commentary - research - analysis) chose that option last year and completed its spinoff of Agere (AGRA:NYSE - news - commentary - research - analysis) on Monday. Just last week, Nortel announced its seventh round of job cuts and warned that sales were slowing more than anticipated. Those moves, combined with the confirmation of a pending equity offering, suggest that Nortel isn't on the smoothest road to recovery. And with shares dropping 6% Monday, Nortel may have to face the fact that the issuance of 150 million shares won't necessarily help the stock, which is closing in on a 12-year low, more than 90% off its 2000 high. Leverage Whatever Nortel does to raise money, it should buy the company some leverage with its creditors. The banks are on the hook with a $3.4 billion commitment in the form of a credit line, which Nortel has not yet drawn. But Nortel has certain terms or covenants it must honor to keep that credit line available. Meanwhile, with top customers including WorldCom, Sprint and Qwest cutting deeply into their equipment spending plans, investors are searching for signs that the company's sales slide will one day stop.

To: Harry J. who wrote (12895)	6/4/2002 1:07:49 AM
From: sylvester80	Read Replies (1) \| Respond to of 14638

Well... 150 million shares at $2 does not add to $800 million. Instead it adds to only $300 million. So half a billion of dollars must be coming out of somewhere else. Probably the convertible. And given the current environment, they'll probably get real bad terms on it. At the worse case you could be looking at another 200-250 million arbitrage short shares. So you could be looking at a 10-13% dilution. JMHO.

To: Harry J. who wrote (12895)	6/4/2002 1:10:27 AM
From: Zardoz	Read Replies (2) \| Respond to of 14638

Uhm, is Nortel doing a reverse split to keep on the US exchange?

To: Harry J. who wrote (12895)	6/5/2002 8:58:32 AM
From: waitwatchwander	Respond to of 14638

Nortel tries love Magna-style Canada's fund managers are starting to see Frank Dunn as the second coming of Frank Stronach. In the 1980s, Mr. Stronach almost drove Magna into the wall when heavy debts raised liquidity concerns. The stock traded at $5 levels. But when a tough-love workout solved the credit crunch, and customers returned, Magna came roaring back. Stock bought during the darkest days is now up 20-fold. Nortel Networks'proposed $800-million (U.S.) financing means short-term pain for shareholders. But yesterday, some fund managers said that if CEO Frank Dunn can steer through this year's troubles, there's the potential for a Magna-style recovery. Nortel is offering so-called equity units, plus at least 150 million common shares, as it pays down debt and waits for telecom customers to start buying equipment again. There's a note of desperation to these financings, which have also been used by troubled Nortel rivals such as Lucent. But if Mr. Dunn can avoid a liquidity crisis, he will have dealt with the single largest concern hanging over Nortel. The equity units are what's known as mandatory convertible debentures; they offer the sweetener of three years worth of guaranteed income before being converted into Nortel common stock. For those who care about the inside baseball of corporate finance, here's how Nortel's bankers -- all of whom are lenders to the company -- will create the equity units. Credit Suisse First Boston, J.P. Morgan and Salomon Smith Barney will purchase U.S. Treasury bonds. This government debt will then collateralize the convertible bonds, providing a stream in the 7- to 7.5-per-cent range. The equity units will also contain a forward contract, giving the buyer the option of purchasing Nortel stock at an 18- to 22-per-cent premium to where it now trades. Hedge funds are the natural buyers of these bonds. These funds then short-sell Nortel's common stock, locking in a risk-free 7-per-cent return. That short selling, and the dilution that will come when the bonds are converted, weighed on Nortel's share price yesterday. The stock closed at $2.76 (Canadian), down 47 cents on the TSX, with more than 85 million Nortel shares changing hands on both sides of the border. globeandmail.com