|Canada Commercial Paper Holders Face
More Delays From Appeals
By Joe Schneider and Doug Alexander
April 28 (Bloomberg) -- Investors holding C$32 billion ($31.8 billion)
of Canadian debt that's been frozen since August face more delays
getting their money back because some noteholders may appeal a
restructuring plan approved last week.
Opposition from corporate noteholders, including gold miner Barrick Gold
Corp., will keep the issue before courts for as much as a year as
appeals get resolved, lawyers said.
"If there are appeals, it would delay the completion of the
transaction,'' said Stephen Halperin, a lawyer representing a group of
institutional investors led by Purdy Crawford who crafted the plan to
convert the short-term debt into longer-term notes.
Appeals are likely because Barrick and other investors aren't willing to
give up their right to sue the banks that sold the asset-backed
commercial paper, said Richard Powers, a lawyer and executive director
of MBA programs at the University of Toronto's Joseph L. Rotman School
of Management. He said the debate over the legal releases, which are a
condition of the debt swap that was approved by investors on April 25,
may have to be resolved by the Supreme Court of Canada.
"Look at the parties,'' Powers said in a telephone interview. "They have
lots of resources and they have a lot at risk here. It's only to their
advantage to push it.''
Ontario Superior Court Judge Colin Campbell said last week he plans to
consider the legal releases at a hearing on the debt swap May 2.
Investors have 21 days after that to file an appeal.
"The court is simply not in a position to make an informed decision on
what may or may not be appropriate claims to be released without more
information,'' Campbell wrote on April 24.
Legal releases given to third parties in a company restructuring have
been thrown out as improper by appeal courts in Quebec and Alberta, said
Ken Rosenberg, who represents noteholder Ivanhoe Mines Ltd.
The releases are legal and valid, Benjamin Zarnett, who represents
Crawford's group, told Campbell. He pointed to restructuring cases
including that of Ontario steelmaker Stelco, in which third parties were
protected from lawsuits. The banks that agreed to provide back-up
financing for the new notes will withdraw their support if the legal
protection is removed, Zarnett said last week.
The banks "are providing value that underpins the plan,'' Zarnett said.
"The entire plan is null and void if any part of it is found illegal or
Halperin said any appeals can be dealt with quickly by the courts.
Investors won't receive the new securities until the appeals have been
heard, Crawford said.
"This is commercial litigation and the appeal courts will move
reasonably quickly to accommodate us,'' Halperin said. "It won't be
Further delays won't be welcomed by investors who've been unable to
access their investments since August. Clients of Canaccord Capital Inc.
and Credential Securities Inc. who hold less than C$1 million would get
all their money back once the swap is completed, while noteholders with
more than that can sell at a discount once the debt begins to trade, or
hold them to maturity.
"It'll make me a complete basket-case,'' said Jill O'Hara, when asked
about another delay. O'Hara is a 52-year-old paralegal who faces the
prospect of losing her Victoria, British Columbia home unless she can
tap C$255,000 tied up in the debt.
"It'll be quite devastating if they do grant them an appeal and it does
go on, because I'm back to square one,'' she said.
The case is Between the Investors Represented on the Pan- Canadian
Investors Committee for Third-Party Structured Asset- Backed Commercial
Paper and Metcalfe & Mansfield Alternative Investments II Corp. File No.
08-CL-7740. Ontario Superior Court of Justice (Toronto).
To contact the reporters on this story: Joe Schneider in Toronto at
firstname.lastname@example.org; Doug Alexander in Toronto at email@example.com.
Last Updated: April 28, 2008 00:04 EDT
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