A 'Global Distressed Private-Equity Firm' On the Move

The following Ottowa Citizen article about global distressed private-equity firm MatlinPatterson's bid to absorb Nortel is a great example of a savvy firm that knows a profitable opportunity when it sees one. Clearly, Nortel is going down, and Matlin is doing it's best to step it and pick up the pieces, as it were:

OTTAWA — A giant U.S. “vulture” fund is in the hunt for Nortel Networks Corp.
MatlinPatterson Global Advisors, a private-equity investor in distressed companies, says it believes Nortel can still survive as a free-standing company and does not have to be auctioned off in pieces.
It must put together a competing bid by July 21 for a court-sanctioned auction July 24, in which NSN so far is the only bidder.
MatlinPatterson lost an attempt in a U.S. bankruptcy court this week for a 15-day extension to the official bidding process in the US$650-million sale of most Nortel wireless assets to Nokia Siemens Networks. Nortel and NSN hope to close the sale July 29.
“We are working very hard to respond to the bidding process established by the court,” Jennifer Feldsher, the lawyer representing MatlinPatterson, said Tuesday.
“We are moving heaven and earth to put ourselves in a position where we can participate.”
Matlin, which Fortune magazine has called “the Babe Ruth of vulture investing,” is an expert at sniffing out value in troubled markets, buying depressed debt at low prices and fighting battles in bankruptcy courts to maximize returns.
It calls itself “a global distressed private-equity firm” with offices in New York, Hong Kong and London.
It disclosed in a U.S. bankruptcy court filing that it holds US$400-million US in Nortel bonds, or about 10% of Nortel debt.
In filings with the U.S. bankruptcy court, MatlinPatterson said the quick bidding process could “seal Nortel’s fate by limiting the rights of current creditors (and other prospective bidders) to propose options less drastic than a wholesale liquidation of one of the world’s telecommunications giants.”
It noted that Nortel is far from being a “wasted asset” with cash reserves of US$2.7-billion as of June 6, US$220-million higher than at the start of the bankruptcy-protection process in January.
Nortel “has been making money in these Chapter 11 (bankruptcy protection) cases, not losing it,” the filing said. “That is no small feat in this depressed economic market and signals that Nortel’s core business and platforms are strong, may have a future, and certainly deserve more consideration and the benefit of the doubt.”
It said the short bidding period will let NSN “lock down these valuable core assets.”
U.S. bankruptcy court judge Kevin Gross rejected the MatlinPatterson bid for an extension, citing concerns that NSN could walk away or cut its price if the deal is delayed.
However, he did make some changes to the bidding process, including making the reorganization of Nortel, as well as the sale of all assets, acceptable bidding options.
He also ruled that NSN has to top, not simply match, competing bids to win the wireless assets.
Nortel employees could favour the NSN takeover because it plans to hire 80% of the 3,100 employees supporting the wireless operations.
But the $650-million price is low at just 25% of 2008 product and service revenues.
A bidding war would be a welcome outcome for Nortel pensioners, ex-employees seeking severance, suppliers denied payment and bondholders. They now face the prospect of huge losses if all Nortel assets are sold for US$2.5-billion or less.
Ottawa Citizen