BOYD ERMAN , TARA PERKINS and JACQUIE MCNISH
Thursday, April 10, 2008
Corporate investors who say they have been shortchanged by a $32-billion
ABCP restructuring proposal intend to ask the judge overseeing the
effort to give them a veto in the process, which took a major leap
forward yesterday when Canaccord Capital Inc. unveiled a plan to ensure
most individual investors see a full return of their money.
Canaccord, a brokerage that sold asset-backed commercial paper, said it
has arranged a buyout for 1,430 of its clients who hold less than
$1-million apiece at 100 cents on the dollar. That generated cheers from
many investors and may ensure majority support for the proposal in a key
vote scheduled for April 25.
However, the Canaccord buyout plan doesn't include 28 corporate holders
and 15 individual investors with more than $1-million of the paper in
accounts at the firm. Instead, the big corporate holders will be
eligible for loans secured by their holdings. Similarly, National Bank
of Canada bought out smaller holders last year but investors, many of
whom were corporate clients, were only offered loans as compensation if
their holdings were worth $2-million or more.
The fact that smaller holders are getting bought out at par has left
corporate holders fuming at what they view as lesser treatment.
It has them planning court challenges that could hold up the
restructuring plan engineered by a committee of big ABCP investors, such
as the Caisse de dépôt et placement du Québec.
"The restructuring as it's currently proposed does not give a fair shake
to our clients, and we either need it significantly amended or it needs
to be set aside and the committee needs to go back to the drawing
board," said Peter Linder, a Calgary lawyer who is representing seven
oil companies saddled with frozen ABCP.
While most corporate investors have more money at stake than retail
investors, the financial institutions that sold them the notes have less
incentive to bargain because corporate holders lack the same leverage.
Retail investors represent the largest group of ABCP investors with an
estimated 2,000 holders and can control the restructuring vote, forcing
banks and other institutions that would be hurt if the restructuring
plan failed to play ball.
The number of corporate holders is much smaller, giving them little sway
in the vote. Yet companies such as New Gold Inc., Redcorp Ventures Ltd.
and Universal Uranium Ltd. have hundreds of millions of dollars locked
up since the ABCP meltdown in August, forcing them to scramble for
alternative financing arrangements to pay their bills.
Some corporate holders are considering launching lawsuits against those
who sold and structured the troubled notes.
Others plan to ask Mr. Justice Colin Campbell of the Superior Court of
Ontario - who is presiding over the restructuring - as early as today to
declare the corporate investors a separate class of creditors, giving
them more leverage because the restructuring could not succeed without
support from a majority of the corporate class.
"They feel left out of the process, and rightly so," said Colin Kilgour,
an adviser to corporate holders as well as to Canaccord clients. "The
mega-investors have been looked after because they built the
[restructuring] plan and the micro-investors are for the most part
looked after. Now you've got the guys in the middle saying, 'This
absolutely doesn't work for us. We don't have the luxury of time, we
need the cash to run our business, and no one's going to step up and buy
us out, so what are the options available to us?' "
Universal Uranium, with $1.4-million of frozen ABCP it bought from
Canaccord, will "probably have to search out an attorney, see what our
rights are," executive vice-president Bill Galine said. "I'm shocked
that they wouldn't take care of everybody at Canaccord." Canaccord said
it didn't have the wherewithal to do a deal for all its clients.
"We worked very hard on this and we certainly tried to put a perfect bow
on this and get to 100 per cent [of our clients], but the best we could
do was to get to 97 per cent," said Canaccord chief operating officer
The current proposal to buy out small holders will cost $138-million,
with about 40 per cent coming from Canaccord as a "top up" and 60 per
cent from an unnamed group of investors assembled by Royal Bank of
Canada that will buy the paper. Adding the bigger clients would have
almost doubled the total cost.
"For most of the Canaccord folks it's a very good thing," said Brian
Hunter, an Alberta Canaccord client and a de facto small investors'
leader. "They've certainly left a few folks out there that are probably
going to be very unhappy."