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Nortel High Yield bonds Plunge 20-30 Points After Asset-Distribution Rulings

High yield bonds backing Nortel Networks fell late on Tuesday and plunged further this morning after investors learned of court rulings both domestically and north of the border that address asset distributions. The 10.125% and 10.75% paper both initially traded towards par late yesterday, from a 113 context prior, but soon printed in blocks this morning around 90, and then 86-87 most recently, trade data show.

Floating-rate notes dropped a quick 20 points, also to the mid-80s, the data show. While that's a big drop, recall that all the paper was trading in the low 20s in 2008 when word first bubbled up that the company engaged restructuring and bankruptcy advisors.

Rulings yesterday from courts in Toronto and Wilmington, Del., held that Nortel’s remaining assets should be distributed among the company’s subsidiaries worldwide on a pro rata basis.

The company filed for bankruptcy in 2009. This latest fight, over about $7.3 billion raised by the company through sales of intellectual property, pitted creditors of the company’s U.S. units, who had been seeking a larger proportional distribution of the assets, against the company’s pensioners and European creditors.

According to a report in the Toronto Globe and Mail, the ruling by U.S. Bankruptcy Court Judge Kevin Gross said creditors would be receiving about 71 cents on the dollar. The report noted, however, that the math might change because the rulings allow for a $2 billion payment to the U.S. unit, and not all of the assets held by the company’s subsidiaries are subject to the ruling. – Alan Zimmerman/Matt Fuller

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