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.
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
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.''
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
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.
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
To contact the reporter on this story:
Doug Alexander in Toronto at