Pensioners and former employees of Nortel Networks Corp. will see their payouts rise under a settlement deal expected to end the company’s seven-year bankruptcy saga.
Lawyers for Canadian and European creditors said Thursday they had to make concessions to win a settlement deal with U.S. creditors, but said the reduction was not large and will be partly offset by foreign currency gains, leaving significant funds to bolster payouts for former employees and other creditors.
“It’s certainly a very good deal for the U.K. pensioners and I think it’s a good deal for the Canadian pensioners as well,” said Toronto lawyer Michael Barrack, who is representing Nortel’s British pension plan members.
Under a proposed settlement deal, which still requires court approval, Nortel’s Canadian operations will get 57.1 per cent of the $7.3-billion (U.S.) remaining from the liquidation of Nortel’s remaining assets, totalling over $4.1-billion. European creditors will get 18.5 per cent or about $1.3-billion and the U.S. claimants will receive 24.4 per cent or $1.8-billion.
Lawyer Mark Zigler, who is representing former Canadian employees of Nortel, said a 2015 court ruling had allocated roughly 62 per cent of remaining assets to Canada, 24 per cent to Europe and 14 per cent to the U.S. division. U.S. creditors appealed the allocation decision, however, and were seeking a larger piece of the pie, dragging out a resolution of the case.
Mr. Zigler said it was worth giving up a small part of the Canadian allocation to reach a settlement deal because there was still uncertainty about the outcome of the U.S. appeal and because a deal would help guarantee payout levels for Canadian employees.
He estimated the Canadian unit would get 4 per cent to 5 per cent less in U.S. dollar terms compared to the original court allocation, but said the payout will be improved when the money is converted to Canadian dollars because of the weakness in the currency.
As well, he said a settlement deal is the most cost-effective solution because money is flowing out of Nortel’s accounts to pay legal bills.
“This was a way of putting an end to it, and it’s about time that would happen,” he said. “This thing has been going on for almost eight years.”
Nortel filed for bankruptcy protection in January, 2009, and lawyers have fought for over seven years over the distribution of the company’s remaining assets among Nortel’s key divisions in Canada, the U.S. and Europe.
Legal and professional bills paid from Nortel’s remaining funds topped $2.5-billion (Canadian) as of March, 2016, according to a review by independent analyst Diane Urquhart. The professional costs are highest in a bankruptcy in Canadian history.
Mr. Zigler said claims by former employees in Canada -- excluding pension plan claims -- are expected to receive 45 per cent to 47 per cent payouts if the settlement deal is approved. The employee claims include long-term disability payments, severance pay and lost health benefits.
Nortel’s Canadian pension plans will also benefit, with money from the settlement helping cover a significant shortfall that existed in the plans at the time the company filed for bankruptcy protection.
The Ontario plan had roughly a 30-per-cent shortfall, including coverage provided by the province’s pension guarantee fund, which meant retirees were expected to get about 70 per cent of their pensions. Plans in other provinces without a government backstop were expected to provide 55 per cent to 60 per cent of the total owed to pensioners.
Funds from the settlement deal will raise those payout totals significantly, although lawyers said Thursday they did not know yet what the final payout totals will be.
Nortel’s European claimants will also see significant improvements to their payouts, and will benefit even more from currency gains, said Mr. Barrack, who is representing U.K. pensioners.
He said the sharp drop in the U.K. pound this year means the U.S. assets will be worth far more than expected at the time of the 2015 court ruling that divided Nortel’s assets. That means the concessions made to reach a settlement with U.S. claimants will be largely offset.
“To get the finality of a settlement and move forward to get the money into the accounts and bring a conclusion to it is something that is a good settlement for our clients,” he said.
Payments should begin flowing to creditors in the first half of 2017, according to Nortel’s Canadian monitor, Ernst & Young.
As previously announced, shareholders of Nortel will not receive any value for their shares under the deal, Ernst & Young said in a statement.Report Typo/Error