Investors Scrutinizing the Regulators

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Some Canadian investors want ABCP money now


Wednesday, March 26, 2008 | 11:54 AM ET


Some Canadian retail investors are balking at the terms of a court-approved plan to restructure $32 billion worth of asset-backed commercial paper.

A Toronto law firm known for taking on class-action cases said Wednesday that it has been retained by retail investors to try to change the terms of the deal.

 

What is ABCP?

ABCP asset-backed commercial paper is short-term corporate debt that is made up of loans like credit card receivables or car loans. I can also include bundled loans that have exposure to the U.S. subprime mortgage market. This debt is then resold to other investors, taking the original loans off the books of the company that first issued them. That can lead to lower lending standards because the originator of the loans doesn't have to worry about collecting.

ABCP tends to yield more than Treasury bills, making it a popular place for companies, pension funds, and individual investors to park money. In Canada, about two-thirds of the $120-billion ABCP market is sponsored by the big banks. The rest is known as third-party, or non-bank ABCP.

In 2007, holders of some non-bank Canadian ABCP ran into trouble refinancing the debt when the credit crunch made investors shy away from any investment perceived to be risky. Their investments remain frozen.

The plan was approved by a judge on March 17, but noteholders have yet to vote on the proposal. Each investor will have one vote, no matter how much of the paper they own.

This potentially gives the group represented by Juroviesky and Ricci LLP a good bargaining position. The lawyers said they were retained by Brian Hunter, Ted Mcfeely and the "Facebook Group" of ABCP investors.

The retail investors want all of their money out immediately, rather than having to wait as outlined in the court-approved plan, the law firm said in a release.

The proposed deal was put together by lawyer Purdy Crawford and the Pan-Canadian committee, a group of large institutional investors.

It proposes to give all noteholders a new note with a longer maturity than the note they originally purchased.

But retail investors can't afford to wait to get their money back, and "are loath to support" the plan, the lawyers said in a release.

Some clients "are already experiencing significant financial hardship arising out of the delay in accessing their funds," the release said.

"We will be looking to the institutional clients and other stakeholders in the Pan-Canadian committee arrangement that stand to benefit from the proposal, to assist our clients in making the arrangement a positive plan for them, as well," said lawyer Henry Juroviesky.

Juroviesky and Ricci has taken on at least three class-action cases since last fall:

  • Against several major Canadian chocolate makers for alleged price-fixing.

  • Against automakers for inflating prices and discouraging cross-border car buying.

  • Against accounting and consulting firm KPMG for failing to pay employees proper overtime.

Crawford encouraged all noteholders to back the plan when it was announced, but also said: "We are really committed to do everything we can help individual or small investors."
 

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