Nortel Creditors Start Mediation on Splitting $9 BillionSteven Church
Creditors of Nortel Networks Corp., the telecommunications company being liquidated in bankruptcy, gathered in Toronto to try for the third time to agree on how to split $9 billion in cash.
The weeklong mediation pits Nortel’s Canadian and U.S. entities and their creditors against the company’s European units and their creditors, who include retirees fighting to retain pensions. About 100 lawyers and financial advisers met briefly today at a hotel in downtown Toronto before breaking up for separate negotiating sessions, Peter Rehak, a spokesman for the Canadian judge overseeing the mediation, said in an e-mail.
The groups are fighting over a shrinking pile of cash that won’t cover all of the debts owed by Nortel and its units. Creditors have presented more than $36 billion in claims in Canada, according to a status report filed in a Toronto court in October.
Without a mediated end to the disputes, court fights could break out in Canada, the U.S., the U.K. and France with conflicting rulings by different judges, according to the mediator, Ontario Chief Justice Warren K. Winkler.
“This would be a catastrophic outcome,” Winkler wrote in April, when the current mediation effort started. The first two mediations efforts failed.
Nortel, based in Mississauga, Ontario, filed for bankruptcy in Toronto, Delaware, the U.K. and France in 2009, with various units under the control of separate teams of lawyers and under the jurisdiction of different courts.
The Canadian and U.S. units have generally worked closely together, with the U.S. company liquidating Nortel’s most valuable assets. Those sales have generated about $9 billion adding to about $1.2 billion the company has from other sources.
The European units were placed under the control of court-appointed administrators. In 2011, those administrators filed a claim in the U.S. bankruptcy court, alleging that the parent company and the U.S. unit had siphoned money away from the European units for years, leaving them unable to pay pensioners and other creditors. The administrators have demanded about $10 billion.
Investors are betting that some of Nortel’s bonds will be fully repaid with interest. The company’s 10.75 percent bonds due in 2016 have traded above 104 cents on the dollar since July 2011, the month that Apple Inc. and Microsoft Corp. lead a group that paid about $4.5 billion to buy a portfolio of more than 6,000 Nortel patents.
The bonds fell 1 cent today to 117 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The case is Nortel Networks Inc., 09-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).