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
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?
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."