Nortel Canada Says Fast Answer on Interest Rate Could Aid Settlement

Bankruptcy officials for Canada’s Nortel Networks Corp. say a fast answer on the question of how much interest bondholders should collect may aid settlement talks that could end a bigger battle: the long-running fight over the defunct company’s billions.

Bondholders owed more than $4 billion are looking for an additional $1.6 billion in interest and other payments, according to court papers filed Thursday by Ernst & Young Inc., as monitor in Nortel’s Canadian insolvency proceedings. However, there is an argument under U.S. law that bondholders are entitled only to about $90 million in interest.

Unless there’s a deal, there will have to be a ruling on the interest rate question, and it would be “helpful” to get that answer quickly, lawyers for Nortel Canada’s monitor said in court papers. Without knowing which way the courts will go on the question of how much bond interest is due, it is “virtually impossible” for Nortel’s creditors worldwide to evaluate their positions on settlement over who gets what of Nortel’s liquidation proceeds, lawyers for the Canadian monitor said.

Friday morning, lead Nortel U.S. bankruptcy attorney James Bromley handed a submission on the question of the bond interest rate to the U.S. bankruptcy judge jointly overseeing Nortel’s liquidation trial. The judge’s Canadian counterpart, speaking from Toronto, said he had also received the Nortel U.S. submission. You can read the submission, which was filed to the Nortel docket later Friday morning, here.

Nortel, a one-time telecommunications giant, entered bankruptcy in 2009, and its liquidation raised $7.3 billion. National camps of creditors have been fighting over the cash for years, a dispute that culminated in a full-blown five-week trial after repeated mediation efforts failed to bring the parties to a deal.

Even without a settlement, leaving such a big-ticket item as the interest issue an open question presents a “legal and practical impediment to moving the Nortel insolvency proceedings to the point” where creditors can be paid, according to the Canadian monitor.

At a court hearing Thursday, lawyers for Nortel’s Canadian creditors committee and for representatives of Nortel’s British pensioners said they back the Nortel Canada monitor’s position.

An ad hoc committee of bondholders is also expected to weigh in on the interest dispute. The committee consists of investors that picked up Nortel debt at a discount after the telecommunications company collapsed in 2009.

The judges presiding jointly over Nortel’s cash trial, Justice Frank Newbould of the Ontario Superior Court of Justice and Judge Kevin Gross of the U.S. Bankruptcy Court in Wilmington, Del., will decide whether to take up the question of the bond interest rate soon, or let it play out later.

Write to Peg Brickley at [email protected].

This post was updated at 11:50 a.m. ET to add the interest-rate brief from Nortel U.S.