Nortel Draws Down Bank Line

Updated from 9:55 a.m. EDT

Nortel

(NT)

once again trimmed its first-quarter financial guidance Tuesday, but the real news was at the bank.

The Toronto telecom gear maker drew down its entire $1.75 billion bank line after it couldn't get its lending syndicate to agree to roll the loan over.

It's clear, says Gimme Credit analyst Carol Levenson, that "something went very, very wrong with the bank negotiations." Typically, when companies need to secure more financing, they simply cut a new deal with new terms, the analyst points out. But with three of Nortel's 27 banks dissenting, some observers sense deeper troubles ahead.

"We have solid relationships with our banks," a Nortel spokesman says, declining to comment on what element of the negotiations failed to pass muster with all 27 banks.

Part of the problem potentially lies with its financial forecasts, which Nortel keeps lowering. On Tuesday Nortel forecast a first-quarter pro forma loss of 14 cents a share, excluding acquisition-related charges, on revenue of $2.9 billion. Analysts polled by Thomson Financial/First Call projected a loss of 13 cents on revenue of $3 billion. A year ago, the company lost 9 cents on revenue of $5.75 billion.

Last month,

TheStreet.com

examined the market's increasing sense that Nortel wouldn't be able to clear even the low bar it had set for itself in coming periods, as big customers like

Qwest

and

WorldCom

continue to cut back equipment spending. Since then Nortel has suffered through

debt downgrades and a plunging stock price as worries about its liquidity resumed.

Tuesday, Nortel said it would draw down the bank credit line as a precaution, despite its $3 billion cash balance. The company said it has no immediate need for the funds and noted that its first-quarter losses wouldn't put it out of compliance with bank covenants.

All the same, lenders are clearly worried about the deteriorating trends at Nortel. Moody's lowered Nortel debt to a junk rating last week, and S&P followed suit late Tuesday afternoon.

There is also new speculation that Nortel may be forced to consider a takeover offer from a rival networking shop. French gearmaker

Alcatel

(ALA)

jumps to the top of that list of possible acquirers. Alcatel and

Lucent

(LU)

were in the final stages of a merger last year when Lucent Chairman Henry Schacht killed the deal over management control issues. Nortel declined to comment on takeover talk.

Nortel shares added 2 cents to $3.60 Tuesday.