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Nortel Deal Lands GENBAND a Negative Corporate Outlook

GENBAND Inc.’s pending takeover of Nortel Networks’ carrier VoIP assets has some credit analysts a little uneasy.

Because the Nortel unit measures five times as large as GENBAND, and because both companies’ revenue has been falling, ratings service Standard & Poor’s made a move. The company assigned GENBAND a ‘B’ corporate rating with a negative outlook.

GENBAND must integrate Nortel quickly and show income soon to protect its liquidity, credit analyst Jennifer Pepper said. Pepper called GENBAND’s risk “significant,” given the size of Nortel’s carrier VoIP division, and said the Texas-based company needs to watch its cash flow during restructuring — that includes paying attention to “cost-cutting initiatives to attain profitability,” Pepper said in a prepared release.

To that point, Standard & Poor’s gave GENBAND a ‘B’ on the $250 million loan GENBAND proposes to use to, in part, pay for the Nortel acquisition.

If GENBAND makes the right decisions, however, Pepper expects the equipment maker to secure a better competitive position and solid market share.

GENBAND in February won the auction for bankrupt Nortel’s carrier VoIP properties — because there were no other bidders. The two companies have received court approval for the deal, which requires GENBAND to pay about $182 million, after accounting for balance sheets and other adjustments from the original offer of $282 million.

For that sum, GENBAND gets almost all of Nortel’s carrier VoIP platforms, patents, R&D work, support operations and customers.

The transaction is expected to close sometime this quarter.

The Standard & Poor’s ratings announcement came a day after two research firms said Nortel’s carrier VoIP group boasted the highest sales among all such suppliers during 2009’s fourth quarter. The data came from Infonetics Research and Dell’Oro Group. Nortel is an Infonetics client.


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