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ABCP panel seeks Ottawa's help

December 10, 2008 at 6:00 PM EST

The committee overseeing the $32-billion asset-backed commercial paper restructuring is meeting with the Finance Department Wednesday to plead for government assistance amid signs that the proposal to fix the frozen notes is in jeopardy.

A resolution to the 16-month old problem now appears unlikely before 2009 because some players in the restructuring are dragging their feet, and participants are growing increasingly concerned that the endless delays may lead to failure without government support.

The restructuring committee, led by lawyer Purdy Crawford, is meeting Wednesday with federal officials in Toronto, sources said. The hope is that the federal government, and potentially provincial governments that also have a stake in the success of the restructuring, will somehow provide backstops that will get the process moving again.

Sources said the issue continues to be the fact that many institutions that are crucial players in the restructuring have put the plan low on their to-do lists as they grapple with other issues thrown up by the financial crisis.

Although the plan was approved by dozens of banks, pension funds and other players months ago, sources close to the discussions said support for the rescue operation has declined following takeovers or government bailouts of many of the institutions involved.

“Clearly the issue is less significant to a lot of our stakeholders and less of a priority to stakeholders because of everything that has happened,” said one person familiar with the talks.

Until now, the federal government has taken mostly an observer role, intervening only to prod institutions to participate in the restructuring.

Finance Minister Jim Flaherty said in August that he was concerned about delays in the restructuring of the $32-billion market, but added that he thought Canada had shown the way to the rest of the world with respect to how it dealt with the situation, noting the plan did not require public funds to resolve the issue. Sources said the Wednesday meeting was not with Mr. Flaherty directly, but with some of his officials.

Finance Department officials have recently signalled that Ottawa is willing to consider a request from the committee for federal government support, said people familiar with the talks.

“The Finance Department is much more engaged,” said one person familiar with the discussions.

One solution would be for governments to put up extra collateral as part of the deal, which would take some of the risk off the shoulders of more reluctant participants and encourage them to finally sign on. While Ottawa would take the lead, some sources suggested that Alberta and Quebec, which both have major provincially-owned financial institutions caught up in the ABCP mess, could also make contributions.

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