Nortel Networks Corp. which filed Chapter 11 bankruptcy in the U.S., Canada and Europe in January 2009 has recently filed paperwork with the U.S. bankruptcy court requesting that it be allowed 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 of the benefits programs costs the company $1 million per month and Nortel argues that they can no longer make these payments in lieu of other creditor obligations.
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.
As part of its yet complete bankruptcy restructuring plan, the company is hoping to dump its benefits obligations to current and past employee and use the $2.8 billion raised by the sale of most of its businesses to repay its creditors. They are also considering whether they will sell their patents to investors or partner with their creditors to create a company that will license its patents, thus creating a post-bankruptcy revenue stream for creditors that could be quite lucrative, notwithstanding changes in technology or more financial problems arising in the future.
Nortel’s bankruptcy plan is due July 14th under new rules that require companies in Chapter 11 bankruptcy to present a bankruptcy plan within 18 months of filing bankruptcy. However, Nortel is hoping to get an extension saying that they need more time to complete the restructuring plan.