A group of U.S. trade creditors is the only remaining major opponent to the Nortel’s settlement plan after the company made deals with a U.S. pension agency and bond holders in recent weeks.Salvatore Sacco/Bloomberg
The two largest holdouts to a critical Nortel Networks Ltd. settlement plan have reached deals to resolve their claims, removing the biggest obstacles to concluding the company's eight-year bankruptcy saga.
The U.S. Pension Benefit Guaranty Corp. and holders of a series of Nortel bonds issued in 1988 have both agreed to settlement deals in recent weeks, leaving a group of U.S. trade creditors as the only remaining major opponent to the settlement deal reached in October to divide Nortel's assets.
The iconic Canadian technology company, once worth more than $260-billion (U.S.), filed for bankruptcy protection in January, 2009, and has been winding up its business ever since, but the case has dragged through the courts for years as creditors have fought over the distribution of assets between the Canadian, U.S. and European divisions of the company.
The settlement deal, unveiled Oct. 12, was a breakthrough in resolving a dispute over the division of Nortel's remaining $7.3-billion in funds.
After lengthy negotiations, most of the company's main creditor groups agreed to a deal that will see the Canadian division receive 57.1 per cent of Nortel's remaining assets, worth about $4.1-billion, while the U.S. claimants will receive 24.4 per cent or $1.8-billion and the European creditors will get 18.5 per cent or about $1.3-billion.
The Pension Benefit Guaranty Corp., a U.S. government agency that backstops pension plans of bankrupt companies, opposed the settlement deal, however, saying it might not receive enough to cover its $708-million claim, which it said was the amount of the shortfall in Nortel's U.S. pension plan after the company filed for bankruptcy protection.
In a deal approved by the U.S. court on Friday, the pension agency agreed to cap its maximum distribution at $565-million, which is less than the $708-million it claimed. In a court filing, PBGC said it made "significant compromises" to reach a deal, but said it is a "balanced compromise that will avoid costly, protracted litigation for both parties."
Holders of a series of bonds issued in 1988 with a principal value of $200-million also opposed the October settlement deal. The bonds were guaranteed by Nortel's Canadian division, and had outstanding unpaid interest of $5.1-million at the time the company filed for bankruptcy protection.
The bondholders and the Canadian monitor overseeing Nortel's windup disagreed about payment of fees and expenses owed to the bondholders' trustee for work since the bankruptcy filing, with the bondholders arguing their fee claim should be paid in full and ranked as a priority claim in the bankruptcy.
Ernst & Young, the Canadian monitor, objected and the two sides negotiated a deal to pay $7.15-million to the trustee for fees and expenses. Including $205.1-million in principal and interest, the bondholders' final allotment will be $212.2-million. The deal requires court approval with a hearing scheduled for Jan. 12 in Toronto.
The trustee for the 2008 bonds was initially the Bank of New York Mellon, but it was replaced as trustee in 2012 by Wilmington Trust.
Lawyer Jay Carfagnini, who represents the Canadian monitor in the bankruptcy case, said all major claims against Nortel's Canadian division are now resolved or are in the process of being resolved.
In the United States, the remaining major claimant is a consortium of unsecured trade creditors who hold $149-million in unpaid claims. They include trade suppliers, as well as some employee claims, including claims for unpaid severance.
The group argues the U.S. division agreed to take too small a share of Nortel's assets under the October settlement deal, saying unsecured creditors with claims only against the U.S. division will recover between 55 per cent and 61 per cent of their claims.
Janet McFarland