February 1, 2006 Toronto, Canada -- Nortel Networks Corp. has announced that it and the company's indirect subsidiary, Nortel Networks Inc. (NNI), have entered into binding commitments for a new one year credit facility in the aggregate principal amount of $1.3 billion, arranged by J.P. Morgan Securities Inc. and Citigroup Corporate and Investment Banking, or their affiliates.
According to a press release, subject to the terms and conditions of the commitments, JPMorgan Chase Bank, N.A., Citigroup Corporate and Investment Banking, Royal Bank of Canada, and Export Development Canada have agreed to provide NNI with a credit facility in the aggregate amount of $1.3 billion, consisting of (i) a senior secured one-year term loan facility in the amount of $850 million and (ii) a senior unsecured one-year term loan facility in the amount of $450 million.
This new facility, which would mature in February 2007, will be used to refinance the outstanding $1.275 billion aggregate principal amount of 6.125% Notes due February 15, 2006, of the company's principal operating subsidiary, Nortel Networks Ltd (NNL).
The company says it has elected to proceed with this financing while it continues to pursue important objectives, including the ongoing mediation efforts relating to two of its significant pending class action lawsuits in the United States. As the company has previously disclosed, it cannot predict whether such mediation efforts will result in achieving a global settlement encompassing these two actions. The company continues to evaluate its long term financing alternatives and says it expects to access the capital markets at the appropriate time.
The secured loan would be secured by a first priority lien on substantially all of the U.S. and Canadian assets of the company, NNL, and NNI. NNL's $200 million 6.875% Notes due June 15, 2023 and amounts outstanding under NNL's $750 million EDC performance-related support facility would be equally and ratably secured with the secured loan. NNI's obligations under the secured loan would be guaranteed by the company and NNL, and amounts outstanding under NNL's $750 million EDC performance-related support facility would be guaranteed by the company and NNI during the term of the secured loan. As of January 30, 2006, there was approximately $156 million of outstanding support utilized under the EDC Support Facility.
The loans under the facility would bear interest equal to LIBOR (or in certain cases a defined base rate) plus an applicable margin as set forth in the commitment letter. The loan documentation would contain representations, warranties, covenants and events of default customary for financings of this type, including a minimum Adjusted EBITDA covenant for the secured loan and a covenant applicable to both loans that unrestricted cash and cash equivalents of NNC on a consolidated basis must at all times exceed $1.0 billion.
NNI would be required to prepay the facility in certain circumstances, including in the event of certain debt or equity offerings or asset dispositions of collateral by the company, NNL or NNI. The financing commitments permit the lenders, in consultation with the company, to further syndicate the facility and are subject to the completion of definitive documentation for the facility and other customary conditions. The company and NNI have agreed to a demand right exercisable at any time after May 31, 2006 pursuant to which they would be required to take all reasonable actions to issue senior unsecured debt securities in the capital markets to repay the credit facility.
The company's consolidated cash balance at the end of 2005 was approximately $3.0 billion.