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ABCP road show hits brick wall

Tears, anger, threat of lawsuit as Crawford wraps up presentation, with only 10 people showing hands for plan

Thursday, April 3, 2008

VANCOUVER -- The Purdy Crawford-led road show for commercial paper investors reached a dramatic crescendo yesterday as the rarely frazzled lawyer appeared to lose his cool, raising his voice to tell one angry questioner that more would be done for individual investors.

Mr. Crawford faced his largest and most vocal crowd by far in Vancouver as he wrapped up the five-city cross-country tour he undertook to present to investors the plan his committee came up with to fix Canada's frozen $32-billion commercial paper market.

Many investors said it wasn't enough. One woman cried after telling Mr. Crawford she had to go back to work at age 65 because of her third-party asset-backed commercial paper investments.

Mr. Crawford's breaking point appeared to come as Bill Galine, executive vice-president of Universal Uranium Ltd., lobbed in a number of questions, including "who is going to jail here?"

He asked Mr. Crawford why financial institutions shouldn't take care of retail investors, "the ones who are desperate and put their money in and didn't know the deal. Is that fair?"

"That's what I've been trying to tell you all day, that that's what's going to happen," Mr. Crawford said, his voice loudly raised.

"The reality is, we're talking about a top-up to the plan," he told reporters later. "I think it will go well."

While 100 cents on the dollar is "a big ask, you have to measure that against this going down the drain, and what flows from that in terms of potentially years of litigation," Mr. Crawford said.

He is using "moral suasion" to convince institutions that sold the paper, such as Canaccord Capital Inc., to do more for their customers who have been stuck holding it. However, any top-up is not within the committee's control.

Mr. Crawford is working to sell investors on the merits of his committee's plan to fix the ABCP market, but he realizes the vote hinges largely on whether investors can squeeze additional help from Canaccord and others prior to the April 25 vote. He said yesterday that the date of the vote is flexible, and investors will be given enough time to consider any top-up that might come out. Canaccord has been working on a "relief plan" for its customers.

"You can't deal with what might be a top-up without understanding what's in the bottom," Mr. Crawford told reporters.

The current estimate is that roughly 1,800 retail investors hold the paper, and many of them bought it from Vancouver-based Canaccord.

After the meeting, Mr. Crawford declined to say which way he thinks the vote will go. "They're very much saying ... that if they don't get full recovery, they'll vote against it," he noted, but added he doesn't know how things will unfold when the chips are down.

"We know there's a lot of anxiety, concern, emotion, justifiably so," he said. "We expected it to be more pronounced in Vancouver, and it was."

"It tugs at your heart a lot," he said.

Hundreds of investors packed into a hotel ballroom to hear Mr. Crawford speak and pepper him with questions. At one point a questioner asked those who intend to support the plan to raise their hands, and fewer than 10 shot up in the air.

One investor said the expected total of the committee's fees, costs and expenses for the plan, including lawyers and advisers, is about $100-million, which could be the amount it would take to top up the smaller investors, who are believed to hold roughly between $300-million and $400-million of the paper.

As angry questioners prompted jeers and tension mounted, Mr. Crawford occasionally raised his voice, at one point noting that "we didn't create this problem." He and his associates were hired to find a solution.

"We are going to do everything we can to make what's available to you people a lot more than what will come from the restructuring," Mr. Crawford told the crowd.

Mr. Galine said in an interview that Vancouver-based Universal Uranium, which is listed on the TSX Venture Exchange, holds about $1.4-million of third-party ABCP, and still intends to vote against the plan after what he heard at the meeting, in order to retain its rights to sue. He said he feels "terrible" that people invested in his company and it wound up invested in ABCP.

The most vocal opposition to the plan comes from a group of investors who have banded together on the social-networking website Facebook, and who sought to gather further support by asking investors at the door for their names and contact details.

"Mr. Purdy Crawford says the plan is in my best interest," said one member, Holly Bennett, a 52-year-old Air Canada flight attendant who has about $37,000 of her retirement savings stuck in third-party asset-backed commercial paper. "I don't believe it.

"For him to ask me to vote for a plan that protects the banks from lawsuits and will give me back pennies on my investment, and they can't tell me how many pennies it's going to be." She put her money in third-party ABCP through Canaccord.

Another Canaccord customer, Garry Walker, said he will vote against the committee's plan unless Canaccord or other major financial institutions and pension funds involved in the ABCP market ensure he gets 100 cents on the dollar. "We'll scuttle the whole thing. And then we'll sue."

"I won't vote for the plan, I don't think it helps any of us," added Maurice Pez, a 55-year-old Vancouver architect and developer who holds about $200,000 of ABCP.

Advisers to the committee said yesterday that they are also working toward establishing liquid markets for the paper to trade if the plan passes.

An ABCP primer

What is ABCP?

Asset-backed commercial paper is 30-day and 60-day notes that paid investors interest generated by bundles of mortgages, car loans, derivatives and other assets pooled in special vehicles called conduits or trusts.

Why did ABCP become popular with investors?

ABCP offered good returns at a time when central banks were slashing interest rates. The investment was also highly rated and sold by some of the world's biggest banks. Last year, ABCP accounted for 30 per cent of Canada's $360-billion short-term debt market.

Who holds frozen ABCP?

About 1,400 Canaccord Capital Inc. clients collectively hold $269-million of the frozen commercial paper in their accounts. There are also hundreds of other individual investors who bought the paper from other sellers, bringing the total to at least 1,800 holders. The rest is held by companies, Crown corporations, pension funds, institutional investors and banks.

Why is Canada's ABCP frozen?

The ABCP sector was swept up by the crisis in U.S. subprime mortgages in August. That's when it was revealed that an unknown amount of ABCP was tied to dodgy U.S. housing loans. Buyers disappeared and the market froze. To stop the trusts that issued the paper from going into default and being liquidated, a group of major financial players, led by the Caisse de dépôt et placement du Québec, called for a standstill in the market to avoid a meltdown and seek a solution.

What are they waiting for?

Purdy Crawford and his committee have crafted a plan to exchange the short-term notes for ones that mature in as much as nine years. But a majority of investors must approve the plan when they vote on April 25. That is why Mr. Crawford is holding meetings with investors in major cities.

Will investors get their money back?

Under the restructuring plan, investors who hold the notes until they mature - up to nine years - will receive much if not all of their money back. Many investors say they can't wait that long, and the committee hopes an over-the-counter market will develop so investors can trade their shares soon after the plan is in place. However, investors who have to sell in the short term will almost certainly lose money.

What is the frozen paper's market value?

There have been no recent disclosed trades in the paper, so nobody is sure.

Notes that are backed by bad U.S. mortgages will be worth less than those backed by solid assets. An RBC Dominion Securities analyst recently said the overall market has lost about 40 per cent of its value. However, if the restructuring fails, many of the assets will be seized by creditors and sold at depressed prices, leaving little or nothing for investors who own the paper.

Determining exactly how much of their money investors in this paper will recoup is somewhat more complicated. That's because the restructuring plan for the market involves dividing it up into three types of new investments that will each have different values, because some will be riskier than others, and each investor will get a different mix of the new paper depending on what types of frozen paper they held.

Who's paying for the Purdy Crawford committee and its work?

Investors. It will cost between $80-million and $100-million to pay the lawyers, financial advisers, the court-appointed monitor and the rating agency.

Sources: Boyd Erman, Tara Perkins, staff, wires

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