I do not think the engines will be used for a 707 conversion, it would not be viable, the best conversion for old 707s these days is to non stick frying pans. As an ex 707 jock when the president of the US of A stopped flying in one I took the hint!
I think the most likely scenario is that someone owes someone else some money, but that is no comfort to the crews about to be laid off.
I hope the crews at Cougar can recover from this.