Nortel Takes Another Step Toward Wrapping Up Bankruptcy Case


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Judges in Canada and the U.S. on Thursday approved materials explaining Nortel Networks Corp.'s creditor-repayment plan, inaugurating the beginning of the end of one of the priciest bankruptcies on record.

Thursday's court hearings launched the formal process of polling creditors on the bankruptcy plans that will end Nortel's corporate life after eight years in bankruptcy, and divide the $7.3 billion in proceeds from its global going- out-of-business sale.

Creditors have to weigh in formally, and the Nortel distribution schemes need to pass another court test, but checks may finally go out next year to creditors including employees put out of work in 2009, when the telecommunications icon was swept under in the global recession.

A settlement in October apportioned the money among the Canadian parent company, Nortel U.S., and European creditors, led by British retirees. The settlement is at the core of the payment schemes detailed in creditor materials approved Thursday by Justice Frank Newbould in Toronto and Judge Kevin Gross in Wilmington, Del., who conducted a joint session linked by telephone lines.

Justice Newbould took less than a minute to approve the Canadian materials. Talks continued for another hour in the Delaware courtroom before Judge Gross approved Nortel U.S.'s chapter 11 plan voting materials.

Last year, Justice Newbould and his U.S. counterpart, Judge Gross, issued simultaneous decisions that the cash should be divided according to the debts Nortel left around the world. The rulings were a blow to bondholders, who were counting on Nortel U.S. to defeat Nortel Canada and British pensioners. Bond investors will now collect something less than the $4 billion plus interest that they thought was due to them.

The U.S. pension safety net, Pension Benefit Guaranty Corp., is still fighting Nortel over how much it is owed because of the shortfall in funding in the Nortel pension plan it absorbed in 2009, months after the bankruptcy filing. Nortel'sU.S. retirees have been getting their checks from PBGC. As one of Nortel U.S.'s largest creditors, PBGC says it needs $ 708 million to fill in the gap between the pension-fund assets it inherited, and the checks it will have to send out.

That fight will play out before Nortel U.S. returns to court with the results of creditor balloting, to seek confirmation of its chapter 11 liquidation plan.

Write to Peg Brickley at peg.brickley@wsj.com


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