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.