Monday, March 17, 2008 | 8:48 PM ET
Canadian Press: David Friend, THE CANADIAN PRESS
TORONTO - A plan to restructure $32-billion worth of asset-backed
commercial paper will give both small and large investors equal voting
rights in the process - a move that observers say was widely unexpected.
On Monday, the Pan-Canadian Investors Committee for Third-Party
Structured ABCP was granted an application at the Ontario Superior Court
for bankruptcy protection under the Companies' Creditors Arrangement
The action not only protects the notes from default notices or potential
lawsuits, but requires the committee's plan to be approved by a majority
of note holders at a meeting scheduled for next month.
Toronto lawyer Purdy Crawford, who heads the committee, said Monday
there will be one vote for each noteholder, no matter the size of their
"It is easy to realize we've moved much more to fairness than normally
would be the case," Crawford said in a conference call with the media.
"We are really committed to do everything we can help individual or
small investors. We think this will be a great process and everyone will
benefit from it."
Crawford said how much investors will get back if the plan is approved
will depend on market conditions.
"If things stabilize in the next few months, the chance of recovery will
be much greater, but I wouldn't want to say that everyone is going to
get all their money back at maturity," Crawford said.
"I understand many investors have suffered hardship and anxiety as a
result of the freezing of their investments. We are very sensitive to
the plight of these investors. We want to avoid having the noteholders
endure more anguish than is necessary."
Noteholders will have a month to look over the details in documents that
will be available on the Ernst & Young website once finalized, and
mailed out to noteholders "in the next few days," the group said.
A vote will then be held in late April and, if noteholders approve the
plan, another hearing will be held at the court to finalize it.
Daryl Ching, a managing partner at Clarity Financial Strategy who had
criticized the committee for leaving smaller investors out of the
earlier talks, called the voting process "a big change from what we
Ching, said he and several small investors, were concerned that their
voice would be overpowered by the bigger firms, like Caisse de depot, a
large holder of ABCP.
"Before I would've said the committee already has a rubber stamp and
this is just an exercise in futility to give the impression that people
have a vote," he said in a phone interview.
"Now after reading this I'm saying (to small holders) your vote does
matter. You need to review the restructuring plan carefully and you need
to make a careful decision."
The federal act is normally used by insolvent companies seeking to
continue operations under court protection while working out a new
business plan acceptable to its creditors.
In this case, the CCAA would be applied to 20 trusts set up solely to
hold asset-backed commercial paper, a short-term investment vehicle
backed by underlying assets such as car loans, credit card receivables
ABCP was used by investors as a presumably safe place to park their cash
and receive interest slightly above what would be available from
ultra-safe government treasury bills.
When the U.S. subprime mortgage market crumbled last year, demand for
ABCP suddenly dried up in August and redemptions became impossible
because many were backed by the troubled mortgages.
Companies were unable to get their money back when the $32 billion
market froze up while investors debated how to value the securities.
Smaller retail investors have been hit hardest by the failed commercial
paper, with some having to sell off assets because their money was
locked up in ABCP.
The documents "may come out and say 'your notes aren't worth that much'
but at least it's something because right now we have nothing - and they
have nothing," said Colin Kilgour, an independent consultant on ABCP.
Observers have suggested that some investors could launch lawsuits after
becoming impatient with the process, though the creditor arrangement
protects the notes from any default notices and lawsuits.
The initiative headed by Crawford has been struggling to get off the
ground for months, partly because some of Canada's biggest banks hadn't
fully committed to a $14 billion line of liquidity that could be drawn
on if further problems erupt.
To date, the committee has secured 98.5 per cent of those funding
Crawford commented on the timing of the process Monday, saying turmoil
in the markets is in part to blame for delays.
"I know the process has appeared to have been painfully slow, but I
believe we can obtain a timely and fair resolution to the CCAA course of
action," Crawford said.
"I believe it is the best alternative to minimize harm and maximize
recover for all investors."
Crawford said meetings will be held with investors across Canada before
the vote next month in such cities as Montreal, Toronto, Edmonton,
Calgary and Vancouver.
Late Monday, The Toronto-Dominion Bank (TSX:TD), which had no exposure
to the non-bank ABCP market, confirmed it will provide financial support
to the agreement, saying its participation will not be material.
"We have always said that we would be part of a solution if our
participation was needed to resolve this issue and did not involve
significant risks to our shareholders and customers," said Ed Clark,
president and CEO. "The Pan-Canadian Committee's ability to reach an
agreement is a positive step forward in contributing to a solution that
brings stability to this market issue."
Finance Minister Jim Flaherty also said in a statement Monday he was
happy with the committee's work.
"Since the standstill began last August, the Government of Canada has
encouraged a market-led restructuring as a better course of action for
investors, other participants and capital markets than a fire sale of
assets," Flaherty stated.
"The global conditions that led to the standstill continue to pose risks
and challenges in financial markets."
He also commended Crawford and the committee "for their commitment and
perseverance amid uncertain times."