Nortel Networks Corp.'s bondholders and the company's U.S.
division lost a bid to upset a ruling on how $7.3 billion should be
divided among competing national units of the defunct
telecommunications giant.
An order issued Monday leaves standing the critical elements of
a May decision that disappointed bondholders owed $4 billion by
Nortel, who were counting on Nortel U.S. to win an international
tug of war over the money.
The cash-split decision said a "modified pro rata" formula would
be used to divide the money, so that the Nortel units left with the
biggest debts will get the largest share of the money.
Crucially, the ruling said that, instead of pressing their
claims against both the Canadian parent company and Nortel U.S.,
bondholders must join the queue of creditors awaiting payment from
the Canadian parent company case.
That means Nortel U.S., with only about $1 billion in
non-bondholder debt, will get a smaller share of the cash than it
said it was entitled to receive, and bondholders that expected big
profits will take losses instead. Nortel Canada, which has many
retiree and employee creditors awaiting payment, and Nortel's
British pensioners benefited from the decision.
Nortel U.S. and the company's bondholders sought a do-over from
the judges on the question of how to divide the money, either an
agreement to reconsider the case or clarification that might push
more cash into the pockets of bondholders.
Monday, Judge Kevin Gross of the U.S. Bankruptcy Court in
Wilmington, Del., disappointed them again. Judge Gross said he knew
the bondholders and Nortel U.S. "are unhappy" with the cash split
decision, but refused to reconsider the bulk of the ruling.
Throughout a long and pricey trial last year, the bondholders
and Nortel U.S. argued that the bulk of the money belonged to
Nortel U.S., because it was the division that made the sales and
brought in the money. Nortel Canada argued it should get most of
the money, as the owner of the businesses and patents, and the
parent that was being hit with claims for payment from all over the
world.
Nortel's European units and representatives of British
pensioners argued they had earned their share of the money, as
contributors to the businesses and patent portfolios that were sold
to raise the money.
Nortel U.S. and the bondholders lost the fight, when the judges
ruled that Nortel operated as a global powerhouse, doing business
across national borders. Nortel's money, the leavings of a 2009
collapse and liquidation, should be divided internationally
according to the debts left behind, the judges said.
Judge Gross recognized that appeals are likely, despite
widespread criticism of the spending in the international
insolvency proceeding, with lawyers and other professionals reaping
well over $1.3 billion of Nortel's wealth, while most creditors
still wait for payment.
Write to Peg Brickley at peg.brickley@wsj.com
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