NORTEL TO LIQUIDATE

Nortel, the Canadian telcom company, has agreed to be liquidated. The company will be sold off piecemeal. More and more companies are filing for bankruptcy and then being liquidated. The primary reason? There is no financing available to keep these struggling companies alive.

In past downturns, there was plenty of financing available in the US in the form of Debtor-in-Possession financing. But the current credit crisis, yes it is still going on, has made such financing very scarce. Troubled companies continue breathing as long as they have access to cash. In fact, it is amazing how long a financially troubled company can last when it has cash.

On the other hand, if a financially troubled company doesn't have access to cash, it is even more amazing how quickly the company rushes toward liquidation. In 2009, retailer after retailer has been liquidated. And the smaller bankruptcies that many of us never hear of, are being liquidated at an alarming rate.

So next time you hear about green shoots, be aware that companies are being forced into liquidation every day.

Cheers, Mike