Even Nortel's investment bankers have admitted that the $4.5-billion (U.S.) Canada's one-time star reaped in its patent auction "was higher than any of us would have expected."
Because there has been so much surprise on the upside, bondholders now not only expect to get their full value, but also what is known as post-petition interest, or the interest that they would have earned since the bankruptcy filing.
With so much hope, the bonds have rallied significantly. According to Debtwire, some of Nortel's bondholders believe the company's U.S. subsidiary, Nortel Networks Inc., is solvent, which means they could get post-petition interest on three U.S. dollar debt issues and up a recovery value of up to 135 per cent.
At this point that's still viewed as egregious, but current trading levels do imply that recovery plus some interest is expected. At the moment the 10.125 per cent bonds and the 10.75 per cent bonds are trading around $108, up from around 80 cents on the dollar a year ago.
While Nortel's patents were always expected to fetch some cash, the bonds have rallied so much since the July 1 auction decision because few observer expected them to be worth more than $2-billion. And on Monday the big deal officially became a reality after U.S. and Canadian judges approved the deal.
In total, Nortel has earned about $7.7-billion from asset sales. Theoretically, that should spell good news for pensioners as well, who have been locked in a big legal battle with Nortel and its creditors. But now that bondholders are hoping for post-petition interest, who knows what the workers will end up getting.