Alcatel-Lucent has signed an agreement to receive €1.6 billion ($2.1bn) in new financing from Credit Suisse and Goldman Sachs, confirming earlier reports that the banks would intervene.
The loan, first reported by Dow Jones, gives the ailing telecoms equipment maker -- which makes equipment for AT&T, Verizon, and France Telecom, among others -- more time to recover and get back into a healthy state of financial affairs.
The Paris, France-based company will use the new financing line to extend its existing debt "over several years," the company's chief executive Ben Verwaayen said in a statement, giving the company more room to maneuver in the short-term.
Meanwhile, the new debt, underwritten by the two credit giants, will be backed by the company's 29,000 patent portfolio and other assets. If the company fails to pay the loan back, sinks further into the financial mud or defaults, the two banks will pinch whatever assets they can to recover their losses.
The firm has been in trouble in recent quarters with poor earnings, losses and incurring restructuring costs. Despite the company's recent loss-making quarters, the firm still has a relatively comfy cash pile it's sitting on. That said, Alcatel-Lucent has been burning through its cash reserves as it attempts to stave off a fully-fledged financial meltdown.
In early November, the company said it lost €146 million ($188m) on revenue of €3.6 billion ($4.64bn), a 1.5 percent increase on the second quarter, but down 2.8 percent year-over-year.
While the firm still has €4.7 billion ($6.05bn) in cash at the last count -- over a month ago -- the firm was burning through €1.03 billion ($1.33bn) during the first nine months up to the end of September.
Veraayen warned shareholders on the earnings conference call: "The speed of our cost cutting will have an impact on our cash position."
The bankers' loan will give the company space to carry out a €1.25 billion ($1.64bn) wave of cost cutting. It has begun to cut 5,490 jobs from its worldwide operations, as the firm hopes to hold on to as much cash as it can in the meantime.