Investors Scrutinizing the Regulators

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Huh? ABCP a real head scratcher

April 1, 2008 at 2:32 PM EDT

EDMONTON — The high-profile committee that is seeking investor support for its plan to salvage Canada's frozen $32-billion commercial paper market is bumping up against a troublesome, and potentially costly, barrier – investors just don't understand the thing.

The nearly 400-page document and accompanying slide show that lay out details of the plan make it “way too complex,” said Vladimir Salyzyn, a retired economics professor from the University of Alberta who now has roughly $900,000 from the sale of his farm stuck in third-party asset-backed commercial paper (ABCP).

“I've got a Bachelor of Commerce degree, I've got a PhD in economics. Maybe I'm getting a little senile with age, but not that much,” the 78-year-old said with a smile following an investor meeting in Edmonton.

He walked away from the meeting still undecided about whether he will vote for the committee's plan.

The committee's chair, Purdy Crawford, is hosting the investor meetings across Canada as he works to convince more than 1,800 individual holders of ABCP to vote in favour of the plan at a meeting that's currently scheduled for April 25.

At the outset of Tuesday's meeting in Edmonton, Mr. Crawford told investors that he'd heard from their counterparts in Toronto and Montreal on Monday – “with considerable justification probably” – that the documents are too complicated.

He noted the irony: the committee had been so focused on providing transparency to the market that it may have bogged the documents down in detail. Part of the reason the third-party ABCP market crumbled in August was that investors did not know exactly what the commercial paper was, and what assets lay underneath its esoteric structure. As Mr. Crawford's committee worked to restructure the sector, it tried to focus on gathering a plethora of information to give investors.

After the meetings in Toronto and Montreal Monday, Mr. Crawford said the committee would work to make the information more digestible.

“We're going to do everything we can to continue to be accurate but to drop the footnotes and to try to deal with the bottom line.”

He and his fellow presenters made a noticeable effort to simplify in Edmonton.

“If you're puzzled, I can understand it, because I was puzzled for at least two months,” Mr. Crawford said as one of the committee's financial advisers spoke about “leveraged super senior” synthetic assets.

But many investors were still left baffled.

“I'm just a farmer, I don't know about big dollars and big stuff,” said Murray Candlish, who along with his wife Cindy owns about $350,000 of ABCP, “our entire life savings.”

The committee's restructuring plan involves swapping the relatively short-term commercial paper for longer-term notes.

“I'm still having trouble trying to understand these new notes,” Edmonton resident Peter Myers told Mr. Crawford.

Mr. Crawford said the committee will arrange for a call next week, once people have had some time to digest the plan, where investors can submit questions and the appropriate person will call them back with answers.

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