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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