San Francisco, Oct. 15 (Bloomberg) -- NorthPoint Communications Group Inc. sold Monarch Global Capital Associates LLC the chance to finance the bankrupt telecommunications company's multibillion-dollar suit against Verizon Communications Inc.

Monarch won the chance to lend NorthPoint $7.5 million at zero interest to finance the San Francisco-based company's fraud and breach of contract suit against Verizon. NorthPoint sought Chapter 11 and sued after the largest U.S. mobile-phone company scrapped plans to acquire it for $2.15 billion.

In return for the loan, Monarch will receive 5.5 percent of any settlement with Verizon or 6 percent of the judgment if the case goes to trial. The auction, which experts said may be the first of its kind, attracted five potential buyers who bandied about 30 bids.

``The aggressiveness and interest in the bidding is a reflection on how strong the litigation against Verizon is,'' said Lynn Schoenmann, the U.S. Trustee the court appointed to run NorthPoint on behalf of creditors.

NorthPoint's auction for the opportunity to finance litigation and potentially reap damages is unusual for a bankrupt company and potentially a first, lawyers at the hearing said.

``We're charting new territory,'' Schoenmann said, adding the damages in the Verizon case could amount to as much as $4 billion.

Bidders

Among the five bidders at the U.S. Bankruptcy Court auction in San Francisco was New York-based Angelo Gordon & Co. LP, a top NorthPoint bondholder that in July had offered the bankrupt company a $7.5 million loan to finance the legal battle. U.S. Bankruptcy Judge Thomas Carlson didn't approve that offer.

Angelo Gordon's offer in July charged 16 percent interest, and proposed to take a 15 percent chunk of any settlement or 20 percent of a judgment against Verizon. Today, the bondholder's lowest bid was zero interest on the loan and 7 percent of the settlement or 9.5 percent of the judgment.

Monarch, a NorthPoint bondholder, will also pay up to $200,000 Angelo Gordon spent negotiating the original loan. The company's attorney, Edward Cowen, refused to comment on why the company had an interest in financing the Verizon litigation.

The bankruptcy court in San Francisco converted NorthPoint's case to a Chapter 7 liquidation in June.