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Small investors control fate of ABCP market

Tuesday, March 25, 2008



The success of a plan to repair a $32billion corner of Canada’s asset-backed commercial paper market rests largely with small investors who were sold the investments by brokerage Canaccord Capital Inc., analysts said Monday.


For seven months, the estimated 1,400 retail investors, collectively owning $269 million worth of ABCP, have been largely relegated to the sidelines while several of Canada’s most powerful institutions, together holding $21 billion of ABCP, forged a plan to fix the market that broke down last summer.


But that changed last week with an Ontario court ruling that gives equal weight to each investor at a vote on the restructuring plan, set for April 25.


“Canaccord’s clients . . . can single handedly determine whether the restructuring proposal passes,” said Daryl Ching of Clarity Financial Strategy.


Some 1,400 of an estimated 1,800 retail investors sitting with nonbank ABCP, so called because it was issued by parties other than Canada’s big commercial banks, are clients of Canaccord, an independent Vancouver-based investment dealer. Although exact figures are hard to come by, Ching estimates institutions and companies owning ABCP number about 150.


Several Canaccord clients have said publicly they will vote against the plan, which envisages converting the 30- to 90-day investments into ones maturing within nine years — too long for some, who have no assurance they will get all their money back after that time. By backing the plan, investors would also give up their right to sue.


Canaccord could not immediately be reached for comment. Analysts said the investment dealer, with a market value of around $500 million, would be stretched to buy out its clients as did National Bank of Canada last year.


“They would probably look for support from other people on the (ABCP investor) committee,” said consultant Colin Kilgour. He couldn’t say which entity on the committee might help Canaccord, but added that committee members, who own about $21 billion of troubled ABCP, have a strong interest in seeing the deal approved.


Purdy Crawford, chairman of the committee, has warned if the plan does not pass, it will likely lead to “substantial losses to noteholders.”


Tough market conditions have wiped more than 40 per cent off the value of the ABCP, RBC Capital Markets analyst Andre-Phillipe Hardy said Monday.

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