TORONTO - Bankruptcy for Nortel Networks Corp. (TSX:NT) "is a distinct possibility," an RBC Capital Markets analyst said Thursday, marking down his share-price target for the telecommunications equipment maker to zero.

Nortel has US$2.65 billion in cash "but is overwhelmed with debt and burning cash," Mark Sue noted.

"Considering the worsening macro environment, Nortel's challenged industry position, and concerns related to liquidity while the capital markets are basically closed, we think bankruptcy is a distinct possibility down the road."

Sue suggested that without a government bailout or a major financial investment Nortel may run of out cash before US$1 billion in bonds mature in 2011.

"The world moved on while Nortel was stuck in restructuring mode, and the lack of financial flexibility means Nortel has to rely on asset sales to fund future operations," Sue wrote.

"Our cash flow analysis points to an increasingly challenging outlook."

He reduced his share-price target to zero, from $1.50.

Nortel stock traded at 79 cents Thursday afternoon on the TSX, up 10 cents on the day after dropping to a new all-time low of 65 cents Wednesday.

Taking account of a one-for-10 share consolidation in 2006, that low equates to 6.5 cents relative to Nortel's stock-price peak of $124.50 in mid-2000.

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