News: Courts OK US$7.3M in Nortel bonus payments

By J. Sturgeon | Financial Post | 03. 21. 2009

Nortel Networks Corp. has won approval to pay senior executives millions in retention bonuses as part of a plan to keep key personnel from fleeing the company as it undergoes court-protected restructuring. However, a legal battle is looming.

Courts in Canada and the United States granted the company the right to pay a combined US$7.3-million to top-level managers yesterday --even as thousands of former employees are being denied severance payments.

"You need to keep the good people to make sure this restructuring is successful in order to preserve as many jobs as you can and in order to preserve as much value as you can in this enterprise," said Derrick Tay, Nortel's chief counsel, during a break in proceedings at the Ontario Superior Court of Justice in Toronto.

In total, three unnamed executives in Canada and five in the United States will share in the bonus pool.

Another 26 employees in Canada were approved earlier this month to receive a portion of a US$23-million program designed to retain 92 senior managers across the globe.

The identities of the eight executives were filed in confidential court materials but not made public for competitive reasons, said Mr. Tay.

"If you disclose that information, it's very easy for competitors to come along and say, 'Well, you're getting X dollars, I'll give you X plus Y.' You're drawing a road map for competitors to come pick your key people."

It is thought that Mike Zafirovski, chief executive, is not among the senior leadership being awarded bonuses.

About 880 additional staff could also be paid US$22-million in bonus payments while Nortel restructures.

Faced with mounting debt and dwindling revenue, Nortel-- once the largest telecommunications-equipment maker in North America--filed for creditor protection in January. The Toronto-based company, which has lost at least US$6-billion since Mr. Zafirovski took over in 2005, is labouring under a complex restructuring plan that will have eliminated a total of 5,000 employees by year-end.

Yesterday's ruling in Canada was objected to by a group of about 60 former employees who have been denied severance pay since Nortel entered bankruptcy protection.

"[Nortel] is saying they can't pay because they don't have the money and the creditors would never allow it, but yet they seem to find enough money to pay some other group of employees about US$45-million," Eli Karp, the lawyer representing the group, said in an interview. "That's our grievance."

Mr. Karp, who works for Toronto-based Juroviesky & Ricci LLP, said the number of former employees joining the 60 or so he represents is growing "daily."

Mr. Karp plans to appeal to the Canadian court on April 20 for a representation order granting the right to represent the estimated 1,100 former employees in Canada that are owed about $100-million, or about $90,900 each, in unpaid severance from the company.

"Ultimately we hope to achieve that our [clients] get 100 cents on the dollar of what they're owed," he said.

The company reported at the end of 2008 that it had more than US$2-billion in cash on hand but said in January's filing the funds were needed to continue operations during its restructuring.

The timing of the latest developments could hardly be worse for Nortel.

Public and political outrage has greeted a scheme in recent weeks at beleaguered U. S. insurer American International Group Inc., which agreed to pay US$165-million in bonuses to the very executives blamed for financially crippling the company.

Nortel said yesterday that the "vast majority" of its remaining employees are on some kind of quarterly incentive plan "aligned to the short-term goals" of the company.

Reached for comment regarding the negative public sentiment that could threaten to engulf the company, spokesman Mohammed Nakhooda said, "It is critical we move through the restructuring process and all of its elements as quickly as possible."

-30-

News: No need for wage cuts, CAW says

J. Sturgeon | Financial Post | 03. 06. 2009

Auditors of General Motors Corp. say North America's largest automaker may be forced to seek bankruptcy protection as it fights for financial survival, raising the odds that workers in Canada will be compelled to accept reduced wages and substantial clawbacks to legacy benefits.

If the Canadian Auto Workers union does not agree to concessions, it could spell the end of GM manufacturing in Canada, experts say.

The auditors' warning, filed in GM's annual report last week but acknowledged by the company yesterday, also raised concern among federal and provincial lawmakers over the "sustainability" of the U. S. automaker -- and the billions in Canadian taxpayer-backed loans being extended to it.

Part of GM's path toward returning to profitability lies in labour-cost reductions both in Canada and the United States. Union officials for the CAW began yesterday the unenviable task of renegotiating a collective bargaining agreement for the roughly 10,000 workers the automaker employs here.

"The auto workers are in a desperate situation going in," said Dennis DesRosiers, a senior Canadian auto analyst and president of DesRosiers Automotive Consultants Inc. in Richmond Hill.

CAW officials said they have reviewed a tentative agreement that union workers in the United States have reached with the company and plan to amend the Canadian union's terms to maintain the same level of investment and production that GM dedicates to Canada now, which is about 20% of North American operations.

GM's mounting losses, a negative net worth and massive cash-burn rate may mean the Canadian union will have to absorb heavy concessions in the coming days just to keep the automaker in Canada, Mr. DesRosiers said.

"[The CAW would] be fortunate to get a term sheet that says, 'Here's what it is going to take for us to stay in Canada, take it or leave it.' "

Ken Lewenza, the CAW president, told reporters in Toronto yesterday the terms reached between GM and the United Auto Workers, the U. S. union, did not cut wages or "core" benefits. There is no reason why the CAW could not draft a similar agreement, he said. "We believe we can maintain our existing wage and benefits package."

New bargaining agreements with workers in Canada and the United States may be for naught, though, if North American lawmakers lose faith in GM's ability to revive its fortunes. Yesterday, the grim auditor assessment created fresh uncertainty among lawmakers whether taxpayer money should go toward a company that may well fail anyway.

Ontario's minister responsible for the auto sector acknowledged there is the possibility that money from the province may not be forthcoming.

"If it is not a viable company, we will not make a deal," said Michael Bryant, Ontario's Economic Development Minister, which is partnering with Ottawa in providing potential financial aid to the Detroit automakers. "If it is a company that doesn't have a profitable future, haven't addressed their legacy costs, don't have a business plan that makes sense to us, we will not make that investment -- because it would be a bad investment."

Speaking from Washington where he is consulting with U. S. officials, Jim Flaherty, the federal Minister of Finance, reiterated in a television interview that "viable" plans must be demonstrated by GM and Chrysler if loan support is to remain in place. That includes potential wage concessions and benefit clawbacks, the Minister said.

"There are the costs of labour, the overall costs of benefit packages -- are they competitive between the Detroit Three and the other automobile companies in Canada?" Mr. Flaherty said. "Those are some of the variables that need to be looked at in order to come to some sensible determination on the sustain-ability of these enterprises."

GM reported a US$30.9-billion loss in its 2008 annual report, which also contained an auditor assessment that stated "substantial doubt" existed that the automaker could make good on certain looming debt payments, forcing it into bankruptcy protection.

GM said yesterday it has received waivers from its lenders to have loan recalls deferred.

A spokesperson for GM told The Wall Street Journal GM's main concern at present was attaining the lender waivers, which will buy more time for the company to restructure.

-30-

News: Jobs drought hits Ontario and Alberta

By J. Sturgeon | Financial Post | 03. 14. 2009

Once considered Canada's twin economic engines, Ontario and Alberta continued to lose steam in February, taking the lion's share of job losses and led by a notable decline in construction employment.

The Canadian economy shed a worse-than-expected 82,600 jobs last month, with more than half coming from Ontario, where the construction sector replaced manufacturing as the main industry to be sideswiped by a deepening U. S. recession.

Last month's reading pushed the province's unemployment rate to 8.7%, a full percentage point over the current national jobless rate and the highest level since April, 1997.

"There's no question that Ontario is bearing the brunt of the weakness," said Douglas Porter, deputy chief economist at BMO Capital Markets, in an interview.

About 28,000 construction jobs were purged from payrolls as housing starts continued to moderate in Ontario amid slumping real-estate demand.

"February finally saw building activity catch up with labour-market realities," said Meny Grauman, senior economist at CIBC World Markets.

Other sectors felt the bite as well, with finance, insurance and real estate combining to shed 19,000 jobs.

In contrast, manufacturers -- the source of much of the blood-letting in recent months --added 14,000 positions.

The additions were a surprising development given the grim export environment for goods bound for a recession-plagued United States. However, it was "literally a dead-cat bounce," said Mr. Porter, given "the steep drop in U. S. auto sales and the massive decline in auto production and other manufacturing sectors around the turn of the year."

February's purge mirrors Ontario's experience since Canada's labour market first began to buckle last October. The province has now absorbed just over half of the country's total job losses in the period, or 160,000 positions.

"That's one interesting feature of this report -- just how far Ontario's unemployment rate has risen above the national average," Mr. Porter said. "It's unheard of."

In particular, Mr. Porter noted that Ontario's unemployment rate remained higher than Quebec's for the second month in a row.

Ontario's unemployment rate eclipsed Quebec's for the first time on record in January.

"This is an important development," he said. "It really plays up how much Ontario's economy has suffered in the past year, in particular as manufacturing has struggled."

Since October, Ontario's unemployment rate has risen two full percentage points, with increases concentrated in southwestern Ontario, where the Canadian auto industry is centred, said CIBC's Mr. Grauman.

Unemployment in Quebec edged up 0.2 percentage points in February to 7.9% as 18,000 jobs were lost, led by 11,000 health-care positions.

"Ontario getting above Quebec is unusual in its own right and to be that much above speaks volumes," Mr. Porter said.

Yet the most-populous province in the country wasn't alone, as plunging commodity prices finally spilled over into the construction and manufacturing sectors of Alberta, resulting in a steep rise in unemployment in that province.

"We are seeing job losses move out [west]," Mr. Grauman said. Alberta shed 24,000 jobs last month, pushing the unemployment rate to 5.4%.

Oil's plunge has chilled construction in the oil sands as well as Alberta's once-torrid housing market, eliminating 9,000 construction jobs in February. Another 10,000 jobs were lost in the province's manufacturing sector. The remaining 13,000 were culled from the education sector.

Alberta unemployment now sits at its highest level in six years. As commodity prices remain depressed, the province is expected to lose more jobs in the months ahead, Mr. Grauman said.

"The weakness in the labour market started later there but it's definitely going to continue."

jasturgeon@nationalpost.com