Sunday, June 27, 2010

Nortel preparing to file disclosure in September?

The following article by Peg Brickley contains a number of items that bring into focus why Nortel is acting to close down the medical benefits, and also provides information on legal payments, and a possible pay out to creditors.

Points in the article I thought were especially pertinent to us are:

1. The law requires companies in Chapter 11 to file their plan within 18 months after filing. This means Nortel must provide a plan to the court by September 2010. Nortel plans to file the plan by July 14th.

2. Nortel has asked for a Sept 3 deadline to file a disclosure statement outlining what will be paid to creditors.

3. Nortel is preparing a plan to distribute $2.8B to creditors. Nortel has an estimated $5.5B in liabilities subject to compromise

4.Nortel has been billed by it's legal representative Cleary Gottlieb Steen and Hamilton $76m in legal fees from Jan 09 to April 10. Many other law firms are also looking for payment.


Nortel Networks Corp. (NRTLQ) has moved to shut off health care to retirees and payments to disabled employees in the U.S. as it prepares to distribute $2.8 billion in cash and deal with patents that could be worth another $1 billion.

Papers filed recently in a U.S. Bankruptcy Court say the former telecommunications equipment giant wants to end health care and life insurance benefits on Aug. 31 for more than 4,000 retired people or their dependents, and cut off long-term disability payments to another 280 people.

Each program costs $1 million per month, according to Nortel, and it's money the company no longer wants to spend. Lawyers and a spokesman for the company were not immediately able Tuesday to answer questions about the retiree health care and life insurance cut off, or the decision to end disability payments.

At the end of March, Nortel reached a settlement with Canadian recipients of long-term disability payments who battled the company's plan to shut them off, and leave them with no right to sue.

Nortel is also caught up in a court fight over its bid to block U.K. pension regulators from pursuing it over underfunded pensions in Britain. The company won a favorable ruling in bankruptcy court.

The decision to end retiree health care and push disabled people off the payroll comes as Nortel prepares to file a Chapter 11 scheme to distribute $2.8 billion raised by the sale of most of its businesses among its creditors.

As of the end of March, Nortel also had $1.9 billion in unrestricted cash and $788 million cash stored up in subsidiaries.

Financial records filed with the U.S. Bankruptcy Court in Wilmington, Del., show pensions and other "post-retirement obligations" account for more than $700 million of Nortel's estimated $5.5 billion stack of "liabilities subject to compromise." Most of that category, $3.9 billion, is bond debt.

Nortel's Chapter 11 plan is due July 14, and the Canadian telecommunications equipment maker intends to have a plan on file "on or before" that deadline, according to a filing last week. Nortel is up against the 18-month limit Congress set on companies operating under Chapter 11 protection, to keep them from languishing in bankruptcy.

However, Nortel says it needs additional time to file its disclosure statement, a report that is usually filed side-by-side with the Chapter 11 plan. It asked for a Sept. 3 deadline for the disclosure statement, a document that is supposed to spell out in plain English who is getting paid and how much.

In Nortel's case, the disclosure statement will also be the place to look to see whether the company hopes to rebuild its corporate life around its patent portfolio, or sell the intellectual property and hand out cash to creditors.

Nortel has tested the waters to see how much interest it will get if it decides to sell the patents. There is an appetite for the patents, sources said. There is also speculation that private equity investors are eyeing the Nortel patent portfolio, along with companies like Research In Motion Ltd. (RIM.T), sources said.

The other option, for Nortel and for its creditors, is to form a company to license out the patents, a move that could mean a continuing stream of revenue for creditors. It could also mean continuing exposure to risk, such as the risk that new technology or bad luck in the courts could dim the value of Nortel's patents.

Estimates are that the portfolio as a whole could bring over $1 billion, with the next-generation wireless patents alone expected to fetch $300 million to $500 million.

While the debate over the best way to turn Nortel's patents into cash continues, the professional-fee bills continued to mount.

Some of Nortel's key advisors are due to go before a Delaware bankruptcy judge Friday to collect more than $29 million for three months of work on the case, from February through April. Cleary Gottlieb Steen & Hamilton, the lead lawyers for Nortel, are in line for $14.8 million of that. From January of 2009 through the end of April, the Cleary firm has billed nearly $76 million to Nortel, court records show.

Nortel sought protection from creditors in courts in the U.S., Canada and elsewhere in January 2009.

-By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266

No comments:

Post a Comment