Nortel Networks was a huge global corporation when it went into bankruptcy protection in January 2009. That meant it had to declare bankruptcy in multiple countries under the rules of each country. Some countries work with others to coordinate the processes and in fact there is some recognition between the US and Canada of the court processes. This has implications for retirees since the assets of the company are spread around the globe.
Details on the assets were discussed at a webinar held recently for Canadian retirees and attended by more than a thousand pensioners in Canada and the US. A major point of the discussion was the erosion of cash in Canada as payments were made from the Canadian assets to cover the costs of the Bankruptcy proceedings and other costs that were global in nature.
The following data by region (obtained from the Webinar charts) shows that the available cash balance in Nortel Canada has fallen dramatically whilst the balances in the other regions have remained steady or grown.
Canada ---------January $260M,by June was $120M, drop of $120M.
US ---------------January $480M,by June was $750M,increase of $280M.
UK/EMEA -----January $620M,by June was $710M,increase of $100M
Asia ------------- January $360M,by June was $400M, increase of $20M
Latin America--January $40M,by June was $90M, increase of $50M
Canada's estate started the bankruptcy protection process on Jan. 14th with only US$260 million or 15% of the global available cash. And since then it has declined to less than 7% of the overall global balance.
As stated in the Webinar, it is up to each creditor group to identify and seek intervention from the court in their region on any transactions that they perceive to treat them unfairly and unreasonably not only within the context of the creditors in their own region, but also within the context of creditors in one region versus another.
The outlook is very bleak for getting full settlement of Nortel's Canadian pension, health and long term disability plan deficits and severance paid in the court room, since Nortel is expecting to liquidate and not be an ongoing concern. Under the Bankruptcy and Insolvency Act (BIA) pension, health and long term disability plan deficits and unpaid severance are treated the same as the unsecured debt holders and suppliers owed money.
As a result the Nortel Canadian Retirees Protection Committee, with the help of Diane A. Urquhart, an independent Financial Analyst has initiated a campaign to change the Canadian pension act. The intention is to make pensioners, ex-employees, and those on disability a priority set of creditors so that the trust funds and other funding mechanisms following liquidation will settle with them first before paying other creditors. You can find out more at: http://ismymoneysafe.org/pdf/HowtoFixBIANow.pdf .
The representatives have also requested that the Canadian Federal Government use its authority to set conditions under the Investment Canada Act for a significant proportion of the proceeds from the foreign purchases of Nortel businesses to fund Nortel's Canadian legacy pension, health and long term disability plan deficits and severance.
Thursday, July 16, 2009
Tuesday, July 14, 2009
Bankruptcy impact on disability payments.
When I worked at Nortel during their healthy years, I was pretty happy with the benefits package offered. It was very comforting to know that if you were sick you could go to the doctor and take a few days off to recover without losing income. Even if you became seriously ill and needed a lot of time to recover there was a long term disability benefit which provided income.
During my career at Nortel I heard of a number of people who fell ill or were injured so badly that they couldn’t return to work, but at least they were covered by the long term disability benefit and could survive without falling into poverty.
When Nortel declared chapter 11 and entered bankruptcy protection I was more concerned with continued pension payments and the loss of other pension or severance related income. However, at the recent webinar held by the Canadian NRPC group and hosted by Diane A. Urquhart, Independent Financial Analyst, Mississauga, Ontario, I was astounded to find out that the long term disability payments are in jeopardy. You can watch the video of this webinar at http://ismymoneysafe.org/video/FixBIANow.wmv.
The disability payments made by Nortel had been funnelled through Sunlife Insurance Company. However it was not an insurance policy. Nortel had self funded the plan and were simply using Sunlife as their agent for disability payments. Disabled former employees face income losses of up to 90%. It is shocking that Nortel self-funded its long term disability benefits rather than through an insurance company.
At this point the payments are being made since Nortel is still operating. If it sells off all its assets and liquidates, the trust fund is woefully underfunded and will not support continued payments. It was estimated by the Canadian NRPC that there is only enough money to fund about 10% of the promised payments. This is disgraceful! People on disability have no opportunity to go back to work and recoup their losses. Those receiving LTD will become unsecured creditors with no priority.
It would seem reasonable that a case could be made that the directors are liable for misrepresentation on the security of the long term disability income, and that they failed to ensure there were no omissions or misrepresentations in Nortel's and its Administrative Services Organization Sunlife's long term disability plan literature.
A group representing ex-Nortel employees on Long Term Disability exists in Canada. Sue Kennedy a representative of that group spoke at the Webinar on July 8th and may be contacted at kennedy.robinson@rogers.com.
During my career at Nortel I heard of a number of people who fell ill or were injured so badly that they couldn’t return to work, but at least they were covered by the long term disability benefit and could survive without falling into poverty.
When Nortel declared chapter 11 and entered bankruptcy protection I was more concerned with continued pension payments and the loss of other pension or severance related income. However, at the recent webinar held by the Canadian NRPC group and hosted by Diane A. Urquhart, Independent Financial Analyst, Mississauga, Ontario, I was astounded to find out that the long term disability payments are in jeopardy. You can watch the video of this webinar at http://ismymoneysafe.org/video/FixBIANow.wmv.
The disability payments made by Nortel had been funnelled through Sunlife Insurance Company. However it was not an insurance policy. Nortel had self funded the plan and were simply using Sunlife as their agent for disability payments. Disabled former employees face income losses of up to 90%. It is shocking that Nortel self-funded its long term disability benefits rather than through an insurance company.
At this point the payments are being made since Nortel is still operating. If it sells off all its assets and liquidates, the trust fund is woefully underfunded and will not support continued payments. It was estimated by the Canadian NRPC that there is only enough money to fund about 10% of the promised payments. This is disgraceful! People on disability have no opportunity to go back to work and recoup their losses. Those receiving LTD will become unsecured creditors with no priority.
It would seem reasonable that a case could be made that the directors are liable for misrepresentation on the security of the long term disability income, and that they failed to ensure there were no omissions or misrepresentations in Nortel's and its Administrative Services Organization Sunlife's long term disability plan literature.
A group representing ex-Nortel employees on Long Term Disability exists in Canada. Sue Kennedy a representative of that group spoke at the Webinar on July 8th and may be contacted at kennedy.robinson@rogers.com.
Monday, July 13, 2009
Excerpts from the NRPC-US update on 07-10-2009. Includes claims and medical info.
This post is for the benefit of all ex-Nortel employees and retirees and provides excerpts from information that has been sent out by the NRPC-US steering committee to the paying membership of the group. Anyone wishing to join the NRPC-US group and receive the information and support directly can find the pertinent information at www.nnra.org
Chronology of events last 4 weeks.
June 19 Nortel announced that it has entered into an agreement with Nokia Siemens Networks to sell its wireless network infrastructure business assets for US $650 million. Nortel also announced that it was advancing in discussions with external parties to sell its other businesses.
June 26 certain creditors and suppliers of Nortel Networks filed a series of objections to the proposed sale of a business unit to Nokia Siemens Networks.
June 26 the U.S. Pension Benefit Guarantee Board objected to certain provisions of the proposed sale set forth by Nortel and asked the court that they be modified.
June 28 Koskie Minsky, the Canadian law firm appointed by the Canadian court to represent all current and former Canadian employees published a weekly news bulletin which may be found at http://www.kmlaw.ca/Case-Central/Overview/?rid=107.
This bulletin is significant for U.S. pensioners because both the U.S. and the Canadian NRPC groups have retained Segal Co. to assist in calculating and filing claims with the court(s). Koskie Minsky has already received an initial set of Canadian claims information from Nortel and this newsletter contains a good description of how the claims process will proceed. In the U.S. we intend to follow the same or a similar process.
July 6 U.S. private equity firm MatlinPatterson Global Advisors confirmed that it plans to put forward a comprehensive proposal to reorganize the businesses of bankrupt Canadian telecom equipment maker Nortel Networks.
It stated that it “does not believe that the current proposed transaction with Nokia Siemens Networks maximizes value for Nortel stakeholders." and “MatlinPatterson believes Nortel is a solid company with a valuable brand, talented employees and innovative technologies. It is interested in retaining, for current investors, the inherent value of the company rather than merely accepting a 'fire sale' of its core asset followed by the wholesale liquidation of the remaining businesses". A rescue bid would require a debt-for-equity swap and would need to be put forward by July 24, the date set by the bankruptcy courts to consider the $650 million "stalking horse" bid by Nokia Siemens for most of Nortel's core and profitable wireless equipment operations.
July 3 Nortel announced that it was close to a deal to sell one of its key businesses to rival Avaya Inc. The enterprise Business unit was responsible for 20 per cent of Nortel's business last year. The sales would mean that over the course of a single week Nortel had agreed to sell off assets responsible for nearly half its revenue.
July 8 Koskie Minsky published another bulletin containing updates on the Canadian and U.S. court proceedings. (Also available at the site listed above)
Claims
No Bar Date (the date by which our claims must be filed) has been established. Current estimate is still late September. Should Nortel receive court approval to discontinue any employee benefits after the bar date the court would establish another later bar date for the filing of claims resulting from lost benefits. These claims will be more difficult to estimate and calculate than are the pension claims for the initial bar date. Fortunately Segal Co. is also willing and able to help us should this be necessary.
Medical Benefits
Questions continually arise regarding the outlook for our US medical benefits. Although there are no clear answers yet, the process to be followed is becoming clearer.
First, Nortel has an obligation to file a business plan with the court, which must then be approved by the court. Nortel has not done this. Only after the plan is filed and approved may Nortel petition the court to drop medical benefits on the basis that such costs are too burdensome for Nortel to sustain if it is to achieve its business plan.
Should this happen the court must then decide whether to allow Nortel to drop medical benefits after an employee notification period or whether Nortel must first enter into a negotiation with former employees (called a Section 1114 Process). Whether or not the Court will require a Section 1114 process is dependent on the wording of our various pension plans. No one has yet examined the wording regarding benefit cancellations in the various pension plans because copies of all of the plans have not yet been received by the court.
Should the court order a Section 1114 process Nortel would be required to negotiate with a committee of former employees. This negotiation may result in an agreement between Nortel and former employees to allow Nortel to alter reduce or discontinue benefits in exchange for something of value.
If a Section 1114 process occurs, Segal Co. has considerable expertise in advising employee committees on how to obtain the most value from the process. Segal’s fees for assisting us in the Section 1114 Process would be borne by Nortel. Segal has more experience working with former employee groups on Section 1114 Committees than any other firm in North America and has been successful at helping such groups to set up their own comprehensive and affordable health plans.
Another question which arises is about the likelihood of availability of COBRA should Nortel medical coverage end. Nortel is obliged to offer COBRA to all former employees as long as it has any current employees and continues to offer them medical benefits. While COBRA is more expensive than our existing medical coverage, it does provide insurance for an interim period while former employees explore other medical coverage options.
Chronology of events last 4 weeks.
June 19 Nortel announced that it has entered into an agreement with Nokia Siemens Networks to sell its wireless network infrastructure business assets for US $650 million. Nortel also announced that it was advancing in discussions with external parties to sell its other businesses.
June 26 certain creditors and suppliers of Nortel Networks filed a series of objections to the proposed sale of a business unit to Nokia Siemens Networks.
June 26 the U.S. Pension Benefit Guarantee Board objected to certain provisions of the proposed sale set forth by Nortel and asked the court that they be modified.
June 28 Koskie Minsky, the Canadian law firm appointed by the Canadian court to represent all current and former Canadian employees published a weekly news bulletin which may be found at http://www.kmlaw.ca/Case-Central/Overview/?rid=107.
This bulletin is significant for U.S. pensioners because both the U.S. and the Canadian NRPC groups have retained Segal Co. to assist in calculating and filing claims with the court(s). Koskie Minsky has already received an initial set of Canadian claims information from Nortel and this newsletter contains a good description of how the claims process will proceed. In the U.S. we intend to follow the same or a similar process.
July 6 U.S. private equity firm MatlinPatterson Global Advisors confirmed that it plans to put forward a comprehensive proposal to reorganize the businesses of bankrupt Canadian telecom equipment maker Nortel Networks.
It stated that it “does not believe that the current proposed transaction with Nokia Siemens Networks maximizes value for Nortel stakeholders." and “MatlinPatterson believes Nortel is a solid company with a valuable brand, talented employees and innovative technologies. It is interested in retaining, for current investors, the inherent value of the company rather than merely accepting a 'fire sale' of its core asset followed by the wholesale liquidation of the remaining businesses". A rescue bid would require a debt-for-equity swap and would need to be put forward by July 24, the date set by the bankruptcy courts to consider the $650 million "stalking horse" bid by Nokia Siemens for most of Nortel's core and profitable wireless equipment operations.
July 3 Nortel announced that it was close to a deal to sell one of its key businesses to rival Avaya Inc. The enterprise Business unit was responsible for 20 per cent of Nortel's business last year. The sales would mean that over the course of a single week Nortel had agreed to sell off assets responsible for nearly half its revenue.
July 8 Koskie Minsky published another bulletin containing updates on the Canadian and U.S. court proceedings. (Also available at the site listed above)
Claims
No Bar Date (the date by which our claims must be filed) has been established. Current estimate is still late September. Should Nortel receive court approval to discontinue any employee benefits after the bar date the court would establish another later bar date for the filing of claims resulting from lost benefits. These claims will be more difficult to estimate and calculate than are the pension claims for the initial bar date. Fortunately Segal Co. is also willing and able to help us should this be necessary.
Medical Benefits
Questions continually arise regarding the outlook for our US medical benefits. Although there are no clear answers yet, the process to be followed is becoming clearer.
First, Nortel has an obligation to file a business plan with the court, which must then be approved by the court. Nortel has not done this. Only after the plan is filed and approved may Nortel petition the court to drop medical benefits on the basis that such costs are too burdensome for Nortel to sustain if it is to achieve its business plan.
Should this happen the court must then decide whether to allow Nortel to drop medical benefits after an employee notification period or whether Nortel must first enter into a negotiation with former employees (called a Section 1114 Process). Whether or not the Court will require a Section 1114 process is dependent on the wording of our various pension plans. No one has yet examined the wording regarding benefit cancellations in the various pension plans because copies of all of the plans have not yet been received by the court.
Should the court order a Section 1114 process Nortel would be required to negotiate with a committee of former employees. This negotiation may result in an agreement between Nortel and former employees to allow Nortel to alter reduce or discontinue benefits in exchange for something of value.
If a Section 1114 process occurs, Segal Co. has considerable expertise in advising employee committees on how to obtain the most value from the process. Segal’s fees for assisting us in the Section 1114 Process would be borne by Nortel. Segal has more experience working with former employee groups on Section 1114 Committees than any other firm in North America and has been successful at helping such groups to set up their own comprehensive and affordable health plans.
Another question which arises is about the likelihood of availability of COBRA should Nortel medical coverage end. Nortel is obliged to offer COBRA to all former employees as long as it has any current employees and continues to offer them medical benefits. While COBRA is more expensive than our existing medical coverage, it does provide insurance for an interim period while former employees explore other medical coverage options.
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