In another sign that the capital markets are starting to warm up to the networking sector, Nortel Networks Corp. (NYSE/Toronto: NT) today announced a $1.5 billion bond offering (see Nortel Offering US$1.5B in Notes). The offering is due to close on February 8.

J.P. Morgan & Co. (Nasdaq: JPM) and Salomon Smith Barney are serving as lead managers in the offering of 5-year notes with a 6.2 percent yield. Nortel has an A credit rating from Standard & Poors.

A Nortel spokesperson said the company is raising the money because the corporate bond market has become attractive. The company originally proposed a $1 billion offering but upped it because “there has been a strong interest in the offering,” says David Chamberlin, a Nortel spokesman.

There have been several indications that the markets are becoming more receptive to quality offerings from the optical sector. Last week Ciena Corp. (Nasdaq: CIEN) announced that it would be raising $1 billion in a combined stock and bond offering (see Ciena Tests Capital Markets).

According to the press release, Nortel will use the funds raised from the bond offering for "general corporate purposes." So why is the offering coming now?

Interest rates are coming down, as the Federal Reserve cut rates twice in January (see LR Index Update: Fed's Impact Minimal), and Nortel is trying to capitalize. “Rates for investment-grade bonds are at a 12-month low, so we are trying to take advantage," says Chamberlin.

-- Matt Malina, research associate, Light Reading http://www.lightreading.com