By The Canadian Press - For Business Edge
Published: 04/18/2008 - Vol. 8, No. 8
A proposed "relief plan" by Canaccord Capital Inc. (TSX:CCI) to solve its asset-backed commercial paper (ABCP) problem is being met with caution by the small investors it targets, while larger clients left out are crying foul and threatening legal action.
Vancouver-based Canaccord says it will repurchase up to $138 million of the debt held by 1,430 of its individual clients, or about 97 per cent of its commercial paper holders.
These investors each hold less than $1 million in the investment, which comprise short-term notes generated by bundles of mortgages, car loans, derivatives and other assets.
Canaccord has been publicly criticized by some of its individual ABCP holders for selling them that type of investment, which they believed to be secure.
The company said the paper will be bought by an anonymous company, with a top-up from Canaccord, and is the best deal they could come up with.
"This is a deal we've worked very hard on to protect our clients' best interests," said Mark Maybank, Canaccord's chief operating officer.
Canaccord's relief program is dependent on a successful restructuring of the third-party ABCP market, the plan for which will be voted on April 25 by holders of $32 billion in frozen paper in Canada. The number of holders, including individuals and corporations, is believed to be between 1,800 and 2000.
Toronto-based law firm Juroviesky and Ricci LLP, which represents ABCP holders through Canaccord and other firms, said it was "pleased" with the offer, but that questions still remain.
It has advised its clients not to accept the offer until more details are known.
The firm also said that its clients outside Canada may not be able to participate in the offer, and as a result it will continue to look at other plans.
"Juroviesky and Ricci LLP wants to stress that at this time we are still pursuing an offer to be made to all of our clients that purchased their ABCP from all sources that will relieve all our clients' frozen ABCP immediately at full value," the firm said in a statement.
Canaccord said it has 43 clients not included in the deal, or the remaining three per cent, 28 corporate and 15 individuals. They hold about $130 million in commercial paper from Canaccord. All of those clients will get a loan facility, while individual clients will also receive a top-up, Canaccord said, adding a detailed plan for those other ABCP clients have yet to be worked out.
Patrick Evans, chief executive of Norsemont Mining Inc. (TSX:NOM), which has $7 million in ABCP from Canaccord, called the plan "inequitable and arbitrary."
He believes the plan was set up simply to gain enough votes for the plan later this month.
Bill Galine, executive vice-president of Universal Uranium Ltd., whose firm holds $1.4 million in commercial paper, agreed. Both Evans and Galine said they will consider legal action against Canaccord if the plan goes through as proposed.
"How can you take care of just 97 per cent of your people?" Galine said in an interview.
One larger investor not included in the plan already filed a $3.2-million lawsuit against Canaccord last year.
Canaccord also said it will take a one-time after-tax charge of approximately $39.6 million or 82 cents per share related to the client relief program.
"This is a significant charge to our earnings that reflects our commitment to resolving a very difficult process in the best possible way for our clients," said Paul Reynolds, Canaccord's president and chief executive officer.
Canaccord's stock has slid steadily since the ABCP exposure was revealed last fall. The committee that developed the restructuring plan for the billions in frozen commercial paper to be voted on later this month said it welcomed Canaccord's plan.
"The committee encourages other financial intermediaries who may have sold affected ABCP to small investors to follow Canaccord's initiative and address the concerns of their smaller clients by providing liquidity solutions such as this one," committee chair Purdy Crawford said.
Canaccord also said the executives who head its private client services and fixed income groups are departing.
Robert Larose recently resigned from his position as Canaccord's executive vice-president heading private client services for personal reasons, but will stay at least 60 days to assist clients through the final stages of the ABCP restructuring process.
William Whalen, executive vice-president heading Canaccord's fixed income group, has also announced his retirement from Canaccord.