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The headquarters building of Nortel Networks Corp. in Brampton, Ontario, Canada is pictured on June 15, 2001.Salvatore Sacco/Bloomberg

Nortel Networks Corp.'s U.S. bondholders will be eligible to receive up to $1-billion (U.S.) in interest that has accrued since the company's collapse in 2009 under the terms of a settlement deal approved Thursday by a U.S. court.

The decision, which comes despite protests from the Canadian parent company, resolves one of the major legal disputes still surrounding the wind-up of the technology giant. Courts have yet to rule, however, on the other major question of how Nortel's remaining $7.3-billion in cash will be divided among its Canadian, U.S. and European subsidiaries.

In a ruling released Thursday, Judge Kevin Gross of the U.S. Bankruptcy Court approved a settlement deal reached in July between Nortel's U.S. subsidiary and the vast majority of the company's U.S. bondholders, agreeing to pay them up to $1.01-billion in bond interest that has accrued since Nortel filed for court protection in January, 2009.

The settlement also caps payouts of so-called post-petition interest – interest accrued since Nortel petitioned for court protection – so that more interest does not continue to accrue before Nortel's windup is completed. The decision means U.S. bondholders could collect up to $5.1-billion in Nortel's liquidation, including the $4.1-billion face value of their secured bonds and $1-billion in interest.

Judge Gross said the settlement is "eminently fair, reasonable and in the best interests" of Nortel's U.S. estate, noting it is a compromise between the $1.6-billion bondholders were seeking in interest and the $90-million that Nortel's Canadian monitor argued should be paid. He said interest payments would well exceed $2-billion by the end of next year if a settlement were not reached now to cap their growth.

He added a resolution of the interest dispute may pave the way for a broader negotiated settlement on the key dispute about how Nortel's remaining assets should be divided, noting that compromise "is perhaps the only way to efficiently bring these cases to their end" given the complexities of a multinational bankruptcy.

"The settlement agreement confers a great benefit on the estate in terms of resolving a major dispute, providing certainty with respect to the maximum amount of post-petition interest owed to the supporting bondholders, and providing a building block on which parties-in-interest could perhaps construct a resolution to these cases as a whole," Judge Gross wrote in his decision.

Nortel's Canadian monitor opposed the interest settlement, arguing the deal will give too much of Nortel's remaining estate to U.S. bondholders at the expense of Canadian creditors, including former employees and pension plan members.

In legal filings, the Canadian monitor criticized the process in which the settlement was negotiated, saying it was unfairly excluded from the negotiation talks that were conducted exclusively between the U.S. subsidiary and U.S. bondholders.

However, Judge Gross ruled the process was fair, and said it is not the court's role to ensure every settlement is the best possible for every affected party, but only that falls within the "reasonable range" of litigation possibilities.