A last-minute settlement was reached Thursday in a key dispute in the Nortel Networks Ltd. bankruptcy case — over how much interest should be paid on Nortel's outstanding bonds, according to documents filed in U.S. court.

The settlement, which will see U.S. bond holders collect up to US$1.01 billion in interest payments on outstanding bonds, still needs approval by the court, which will hear the matter in mid-September.

Nortel, which filed for bankruptcy protection in 2009, has $4.1-billion in outstanding bonds.

The Globe and Mail reported that U.S. bondholders had made written submissions to the court saying that interest should accrue at a contractual rate that would add up to at least $1.6-billion.

Pensioners lose out

But Nortel's Canadian monitor Ernst & Young and other creditors argued that any interest should have been calculated at a much more modest U.S. federal judgment rate, which would have capped payments at around $90-million, the Globe said. That would leave more for other creditors, including pensioners and former employees.

The compromise will see bondholders receive $876-million, plus as much as $134-million more if they have not been repaid by the middle of next year, according to the documents.

Lisa Schweitzer, a New York-based lawyer involved in the case, had no comment when reached on Friday.

Legal expenses add up

The Nortel trial is considered one of the biggest bankruptcy cases in Canadian history. The cost of Nortel's demise has climbed above $1 billion US over the past five years, with legal expenses eating away at money that could be divided among the various parties.

At its height from 1999 to 2000, Nortel was worth nearly $300 billion, employed more than 90,000 people globally and was regarded as one of Canada's most valuable tech companies.