Nortel creditors finally get something

TORONTO Nortel Canada’s bondholders, suppliers and former employees will finally start receiving their share of the roughly US$4 billion raised, more than eight years after the company filed for bankruptcy.

Nortel Networks Corp. — the onetime mammoth multinational telecommunications equipment maker — announced Friday the money owed to its stakeholders will be sent out starting late June or early July.

This will see the US$4.16 billion designated as Nortel Canada’s share of the $7.3-billion settlement, negotiated between it and its U.S. and European counterparts, carved up. The settlement will be divided and distributed in stages to those who filed claims against the Canadian section.

How much and when the stakeholders will receive what they’re owed hasn’t been announced. The company’s court-appointed monitor, Ernst and Young, has said creditors will receive less than US$0.50 per dollar owed. In some cases, that means as little as US$.0415.

Nortel was one of the world’s leading telecom equipment makers. It peaked with 93,000 employees and a market capitalization of US$250 billion in the 1990s as the tech bubble expanded. It entered the millennium with a market cap so large it accounted for about onethird the entire TSE.

However, from 1997 to 2001, a mad acquisition spree of Bay Networks and a host of untested startups cost the company billions. Following that, what was, in the court’s view, the unjustified acceptance of an independent investigation into its accounting drove it to sack key members of its executive team, as the telecom industry crashed. It weathered the bust poorly, to say the least, and, in the early 2000s, carried out the largest downsizing in Canadian corporate history.

Things got worse. It couldn’t quite manage to develop fresh technology. The result? Cisco survived. Nortel did not.

In January 2009, the multinational filed for bankruptcy. It was the largest insolvency in Canadian history. When the former gargantuan’s assets were sold off, it raised the $7.3 billion. This started a fight over how the cash was to be distributed among its disgruntled former employees and creditors.

What followed was one of the largest bankruptcy cases in Canadian history. The legal and professional fees surrounding the firm’s demise totalled about US$2 billion. When the deal was finally reached, eight years after the company filed for bankruptcy, the claimants’ return had fallen from 71 per cent to the current 44 per cent.