Nortel ( NT) was hammered in Thursday's premarket after the company warned it will probably be forced to restate 2003 earnings, an action that could affect its relationship with lenders.

The possible restatement stems from an investigation by the company's audit committee into a previous earnings restatement, announced in October 2003. Nortel said it will likely have to redo the unaudited results it published Jan. 29.

Those results, in which Nortel reported robust margin expansion and raised its targets for the rest of the year, sparked a 30% rally in the stock, completing a month in which the shares doubled.

They were falling back to earth Thursday, recently trading for $6, down 88 cents, or 12.8%, on the Instinet premarket session.

In the Thursday release, Nortel said it is examining the "establishment, timing of, support for and release to income of certain accruals and provisions in prior periods." It wasn't more specific about the problem. The company noted that an inability to file its 10-K by March 30 puts it out of compliance with some debt agreements, including indentures covering $1.8 billion of notes issued by its main subsidiary Nortel Networks Limited (NNL), and another $1.8 billion of convertible bonds.

"The company believes that the public debt securities will not become due and payable as a result of a restatement and the related delay in filing the 2003 Form 10-K. However, if an acceleration of the Company's and NNL's debt securities were to occur, the company and NNL may be unable to meet their respective payment obligations with respect to the related indebtedness," Nortel said.

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