Investors Scrutinizing the Regulators

Home Page

InvestorVoice.CA


Securities Regulation In CanadA


Fox Guarding the Hen House

   

 

 
Canadian Investors Approve C$32 Billion Debt Plan

 

By Doug Alexander and Joe Schneider

April 25 (Bloomberg) -- A proposal to restructure C$32 billion ($31.4 billion) of insolvent commercial paper in Canada was approved by noteholders, bringing investors closer to recouping money that's been frozen for eight months.

Investors voted 96 percent in favor of the proposal today in Toronto, said Murray McDonald, president of Ernst & Young Inc., the bankruptcy monitor. The plan to swap short-term debt for notes that mature within nine years still needs approval from Ontario Superior Court Judge Colin Campbell at a May 2 hearing.

"It doesn't get this thing to the goal line, but it's really close,'' said Colin Kilgour, a Toronto-based consultant advising investors on the frozen debt. "Having the noteholder approval creates a lot of momentum, and barring potential legal challenges, we'd expect closing some time in May.''

More than 1,700 individuals who bought asset-backed commercial paper through brokerages Canaccord Capital Inc. and Credential Securities Inc. will get all their money back once the swap is completed. Noteholders not included in the broker buybacks can hold the new notes until maturity, or sell them at a discount when a market for the debt emerges.

About 1,853 investors voted in favor of the plan, of the 1,932 who cast a ballot, McDonald said. The investors backing the plan hold about C$28.8 billion of the debt.

Frozen Market

The market for asset-backed paper issued by non-bank dealers ground to a halt after investors shunned the debt on concerns about ties to U.S. subprime mortgages. The biggest holders of the debt include National Bank of Canada, the country's sixth-biggest bank, Caisse de Depot et Placement du Quebec, Canada's biggest pension-fund manager, and Transat AT Inc., a Montreal-based tour operator.

A group of institutional investors, led by Toronto lawyer Purdy Crawford, drafted the rescue plan to avert a fire sale of assets from 20 affected trusts. The plan is the biggest court- protected restructuring in Canadian history.

"It's a relief,'' said Murray Candlish, 51, a retired hog farmer in Daysland, Alberta, who invested C$350,000 in the frozen commercial paper. "All this anxiety that's been building for eight months is finally disappearing and you can start dreaming again about the good times.''

Legal Battles

Still, the proposal faces legal challenges from some companies including Barrick Gold Corp., the world's biggest gold producer, that hold a combined C$2.7 billion in commercial paper.

Corporations and individuals holding more than C$1 million in debt, who were excluded from the brokerage buyback offers, will have to wait as long as nine years to get their money back, or try to sell the notes in the market at a potential loss.

"A lot of companies purchased ABCP and intended to invest the assets for about 30 days to 60 days, tops,'' said Daryl Ching, managing partner of Clarity Financial Strategy, a Toronto firm advising companies holding the debt. "They were not in a position where they wanted to invest this for nine years.''

The companies, which include pharmacy chain Jean Coutu Group Inc., object to the plan's requirement that supporters must give up their right to file lawsuits against banks that sold the debt.

Campbell said he will review their requests to scrap the legal releases next week. He rejected yesterday their request for a vote delay.

Wins Support

The restructuring plan gained support from individual investors this month after two Vancouver-based brokerages helped bail out their customers. Canaccord and unidentified buyers agreed April 9 to buy back as much as C$138 million in restructured debt at par to gain the support of investors. Credential announced a similar plan for most of its 335 customers who were sold C$48 million of the debt.

"The winners are the retail investors who are getting out at par,'' Kilgour said. "The losers are the corporate investors, for the most part, because they're the main group that doesn't have a side deal coming out of this.''

After the restructuring is complete, which according to Kilgour could be as early as May 23, investors will start receiving the new securities.

"It's going to take some time for a secondary market to develop,'' Ching said. "You're initially going to get vulture funds, the hedge funds and various parties that will come in and throw really low bids at the market, like 40 or 50 cents,'' on the dollar.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Click for more on ABCP