Nortel Networks Corp.’s defunct U.S. unit agreed to pay bondholders as much as $1 billion to cover interest that investors claim has accrued since the former telecommunications giant filed for bankruptcy in 2009.
The company said in a court filing yesterday that it settled a dispute with the bondholders over how much interest they can collect on $3.93 billion in debt issued in 2006 and 2007. A hearing on the interest payments set for today before the judge overseeing the U.S. unit’s bankruptcy was canceled after the proposed settlement was filed.
Resolving the dispute “will streamline” remaining court battles, including a fight over how to share about $7 billion in cash among creditors in the U.S., Canada and Europe, according to the filing in Wilmington, Delaware.
After filing for bankruptcy in courts in Wilmington, Canada the U.K. and France, Nortel began liquidating its assets. The most valuable properties were held by the U.S. unit, including 6,000 patents that sold in 2011 for $4.5 billion.
Since then, pensioners in the U.K. and Canada have fought with bondholders in the U.S. over how to divide the $7 billion raised by the U.S. sales.
The interest-rate settlement involves the U.S. unit, its bondholders and a trustee for creditors, Bank of New York Mellon Corp. The court-appointed monitor overseeing the bankruptcy of Nortel’s Canadian unit opposes paying any interest.
The Canadian monitor isn’t part of the settlement.
The deal is subject to approval by U.S. Bankruptcy Judge Kevin Gross. If he doesn’t sign off, the bondholders will have the right to push for a higher rate of interest, which would pay them about $1.6 billion, according to court papers.
Applying a lower rate used under similar circumstances in other bankruptcy cases, the bondholders would be entitled to only about $90 million as of December 2013, the Canadian monitor said in court papers.
The less money Nortel’s U.S. unit pays in interest to bondholders, the more may be available for Canadian or European creditors, including pensioners.
The case is Nortel Networks Inc., 09-bk-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).