Milbank, Tweed, Hadley & McCloy LLP successfully represented the Ad Hoc Group of Bondholders in the long-running and highly contentious chapter 11 proceedings of Nortel Networks, Inc. (“NNI”) and its affiliated debtors. The case was filed in the United States Bankruptcy Court for the District of Delaware on January 14, 2009, and the Court approved a chapter 11 plan over eight years later, on January 24, 2017, with the consent of nearly all parties in interest, including Milbank’s clients. The case, which also involved parallel insolvency proceedings of NNI affiliates in Canada and Europe, was unprecedented for its size, duration, and cross-border nature.
As counsel to the Ad Hoc Group of Bondholders, Milbank represented the holders of more than $3.3 billion face amount of Nortel’s bonds. The Ad Hoc Group consisted of 16 members at the time of confirmation, and over the years has had more than 40 different members. The bondholders, who represented Nortel’s largest creditor group by far, held primary claims under the bonds against NNI’s Canadian parent company, Nortel Networks Limited (“NNL”) and guarantee claims against NNI.
Upon the commencement of the chapter 11 proceedings, NNI’s unsecured creditors, including the crossover bondholders, were projected to receive a recovery of only pennies on the dollar from the estate. However, over the first several years of the case, that changed as Milbank and other advisors involved in the proceedings orchestrated a series of successful auctions for the sale of Nortel’s global assets, culminating in the sale of the intellectual property portfolio for a record $4.4 billion. These auctions collectively generated more than $7.2 billion for the Nortel Debtors.
As the parties had made the determination prior to the first asset sale to defer apportioning proceeds until the end of all asset sales – with the laudable goal of working collectively for the best outcome (with hindsight maybe not the most expeditious decision) – the parties were next confronted with the challenge of determining which Nortel Debtors were entitled to what percentage of these sales proceeds. After a series of unsuccessful mediations, in 2013, a massive cross-border litigation ensued, involving hundreds of witnesses located throughout the world, millions of documents, and numerous novel legal issues. The litigation culminated in a nearly two-month trial in May and June of 2014, conducted jointly via closed-circuit television link between the Bankruptcy Court in Delaware and its counterpart in Canada. Milbank was involved in all aspects of the litigation, and the mediations that preceded it, on behalf of the Ad Hoc Group of Bondholders.
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In May 2015, the Bankruptcy Court and the Canadian Court issued their decisions on how the sales proceeds should be allocated among the Nortel Debtors, which resulted in immediate appeals by several parties. During the pendency of the appeals, the parties again engaged in mediation. After years of negotiation, those efforts were finally successful in late 2016, leading to a global settlement in which Milbank’s clients are expected to receive a nearly full recovery on their prepetition claims.
The Milbank team was led by Financial Restructuring partners Dennis Dunne and Thomas Kreller, Litigation and Financial Restructuring partner Andrew Leblanc and Finance partner Albert Pisa. Also advising the Ad Hoc Group of Bondholders were Litigation partner Atara Miller; Corporate partner Roland Hlawaty; Finance special counsel Jennifer Harris; Corporate special counsel Brian Kelly; Litigation associates Nicholas Bassett and Eric Weiss; Financial Restructuring associate Nelly Almeida and numerous other Milbank lawyers over the eight-year history of the case. PachulskiStangZiehl& Jones LLP served as Delaware counsel, Bennett Jones LLP served as Canadian co-counsel, and FTI Consulting is the Ad Hoc Group’s financial adviser.