Saturday, February 6, 2010

Possible return on claims against Nortel

The following information is extracted from an excellent article in the Ottawa Citizen by James Bagnall. You can see the entire article by clicking on the following link:

I appreciate the attention that James Bagnall and the Ottawa Citizen are paying to the Nortel Pensioners, Long term Disabled, and severed employees of Nortel. His articles and stories have kept the focus on our plight and has increased the pressure on the Canadian government to waken up and do the right thing to help our situation. His article is entitled:

Much is riding on the signature of a Canadian judge, perhaps too much

By James Bagnall, The Ottawa Citizen January 30, 2010

Extracts from the article. (All figures U.S.)

The scale of Nortel's unravelling is breathtaking. By the time this is over,lawyers, accountants and other professionals will have submitted more than $250 million in bills, which are paid in full before creditors receive anything. Creditors in Canada alone are represented by more than 80 law firms.

The total value of claims submitted by U.S. and Canadian creditors approached $40 billion. In fact,the $40 billion in demands is a vastly inflated figure, pumped up by creditors who have filed the same claim in several Nortel subsidiaries to increase the odds of receiving something. A more realistic estimate is the one prepared by Nortel on the eve of its creditor protection filing a year ago, and updated in November 2009. Nortel reckoned it owed nearly $7 billion to creditors globally. The owners of Nortel's debt - which represents the lion's share of the company's liabilities - seem to believe it's about right.

The sum available to satisfy these claims will be about $5 billion from the sale of Nortel's various assets, combined with cash remaining on its books.

Nortel's bonds are trading between 70 and 73 cents on the dollar- roughly the same ratio implied by dividing $5 billion in projected proceeds by $7 billion worth of claims. Still unknown is how much Nortel will receive for the sale of its remaining patents, if it goes that route.

That's the global picture. However a 67/8-per-cent Nortel bond issued in 1993,(the only one secured against Nortel assets in Canada alone) is trading at roughly 30cents on the dollar. This points to strong pessimism about the amounts that will become available for Canada.

The situation is aggravated for Nortel's Canadian creditors because in the U.S. and Britain independent agencies have guaranteed the pensions of Nortel retirees directly, and then submitted claims to recover the amounts from the bankruptcy proceedings. In Canada, there are no white knights of this sort.

Pensioners and those owed severance or on long-term disability programs have had to hire independent lawyers to try to recover what they can directly. In theory, Canadian creditors should receive the same settlement as other Nortel creditors -60, 70 cents per dollar owed or whatever the final ratio proves to be. But only if the lawyers can establish that the spoils should be divided globally.

Depending on the result of talks over which country gets what, Canadian creditors could recover anywhere between 30 per cent and 70 per cent of what they're owed.

Canadian creditors can take some comfort from the fact that any settlement will require the signature of Geoffrey Morawetz of the Superior Court of Justice of Ontario. In key rulings to date, he has stressed that decisions involving the short-term movements of cash aimed at keeping Nortel's operations liquid should not necessarily be taken as indicators of how the final assets will be distributed.

For instance, he ruled on Jan. 21 that the IRS and related agreements should not prevent the court from granting "such relief as it considers appropriate'' to ensure pension, health and severance pay obligations are met.

What nortel owes ...
According to claims by its creditors: $39.3 billion
In $U.S. as of last autumn. Includes many duplicate claims.
According to Nortel: $6.92 billion
Nortel says the amount could be 'subject to future adjustments.'
Nortel's estimates of what it owes its creditors, in $U.S.:
- Long-term debt (bonds) $4.31 billion
- Pension obligations $1.04 billion
- Other post-retirement costs $599 million
- Owed to suppliers $334 million
- Other liabilities $633 million
... and how it will pay
Cash and asset sales: $5.01 billion*
Funds from the sale of Nortel units are in escrow, and could pay around 70 cents on the dollar if distributed equally. Proceeds from asset sales, in $U.S.:
- Hitachi $10 million
- Radware $18 million
- Ericsson/Kapsch $103 million
- Genband **$282 million
- Ciena $769 million
- Avaya $900 million
- Ericsson $1.13 billion
* Does not include future proceeds from sale of patents and Nortel's share of joint ventures.
** Initial bid only
Source: Nortel corporate reports and court documents.s
© Copyright (c) The Ottawa Citizen

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