Nortel files for bankruptcy

Nortel filed for Chapter 11 bankruptcy protection on Wednesday.

For the past several months, Nortel's management team has been trying to cut spending and the company has also put some of its assets up for sale in an attempt to survive, but mounting debt payments and a steep drop in revenue appear to have caught up with the company.

The most pressing issue for the company is paying the interest on its $3.8bn in bond debt. Nortel faced a $107 million bond interest payment this week, The Wall Street Journal reported.

Nortel has about $2.6 billion in cash, which some analysts have said could help it stay afloat until at least 2010. However, many industry watchers believe that Nortel will likely be broken apart during Chapter 11 restructuring, with individual businesses sold off one by one.

In December, the New York Stock Exchange warned it would delist Nortel's stock if the company couldn't get shares to trade above $1 minimum. Nortel is currently trading at 32 cents.

Nortel's fall from grace was a result of a series of strategic missteps over the years that chipped away at the company's value.

In 2000, Nortel was worth about $250 billion. The company now has a market value of about $275 million.

Mike Zafirovski came on board as chief executive three years ago to help turn around the company. Initially, he had some success building profits from selling wireless gear to US operators. Under his leadership, Nortel invested in new technology, and the company was preparing for the next wave of wireless networks. Then the economy tanked, and phone companies started to pull back on spending, which resulted in a sharp revenue drop for Nortel.

In September, Nortel announced more cost-cutting and said it would sell some of its business units but was unable to find a buyer.

Nortel is also expected to seek bankruptcy protection against creditors in its home country of Canada.