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Author: djman99 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5026  
Subject: Re: Take the money and run Date: 4/12/2002 8:39 AM
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>A layman's explanation, please?

NT had a 1.75B bank line of credit available. Last week the line of credit was about to expire. Normally these credit lines are just rolled over, but with NT's burning cash by the day, the banks were ready to terminate the credit line. NT was nervous that without this credit line they would run out of cash, so in the hours before it expired they drew down the credit line and borrowed the 1.75B. NT does not need the money right now but they figured the only choice is to borrow it while the money is available and keep it in a savings account until the need it, paying high interest all the while.

The banks and NT have now reached a deal. NT has returned the $1.75B saving themeselves interest payments on this high interest loan. The banks have agreed to roll over the credit line while reducing its size to 1.175B and increasing the interest rate.

So while working towards breakeven NT has some security from the fact that they have 1.175B available to borrow at any time.

Of course the entire episode shows how weak NT is. Most of the time a company will get short term money from the commercial paper market, with rates as low as 1.75% (for Aaa Moody's credit rating). These bank credit lines are the corporate equivalent of running up your Visa. In this case Visa was threatening to reduce the customer's credit limit, so the customer ran the visa card over to the ATM machine and took the biggest possible cash advance.


dave
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