BOYD ERMAN AND TARA PERKINS
March 14, 2008
The committee of investors seeking a fix for Canada's frozen $32-billion asset-backed commercial paper market has pushed back deadline after deadline in search of a way to get holders some money back, but today the group faces one that's much tougher to extend.
A standstill agreement that has kept peace in the market and prevented the potential collapse of the restructuring expires at midnight, and sources close to the so-called Crawford Committee say there is almost no way to get consent from all parties to push back the timeline again.
That means that the committee must finally come to the elusive solution it has sought through seven months of intensive negotiations with the mainly foreign banks that are owed money by the trusts that issued the commercial paper to investors.
Unless a deal is struck, or another way is found to preserve the standstill - perhaps by asking a judge for a court order - the foreign banks could begin to call for the liquidation of the trusts.
"After [midnight] it's playing with dynamite and hoping nobody lights the fuse," said one person familiar with the talks.
Sources said that the committee may seek to use the provisions of bankruptcy law to have a judge continue the restructuring under some form of court protection.
Small investors are growing increasingly impatient with delays that have mounted since fall as the restructuring committee fought against deteriorating financial markets to nail down the final terms of a plan to swap the frozen short-term ABCP debt for new long-term notes that if held to maturity would pay back in full.
Layne Arthur has been anxiously waiting for the ABCP market to untangle because he has much of his savings tied up.
"Theoretically, it's two generations of wealth," the 52-year-old Albertan said in an interview yesterday. "I sold the family farm, and I was going to invest it in oil and gas properties if I was successful in the bidding process."
Mr. Arthur's not certain he'll support the committee's plan, because the committee's plan to ask investors to waive their right to sue has left him leery.
Many key issues were still unresolved last night, including which Canadian banks would back a key line of credit that would help ensure that the new notes wouldn't freeze up in future the way ABCP did.
Toronto-Dominion Bank, which argues that it didn't sell the affected ABCP so shouldn't be involved, is nonetheless still in talks to back a small portion of the credit line.
Battered Bank of Montreal is also likely to play along, though it is trying to preserve the right to pull out if need be should losses in other parts of its business increase, said a person familiar with the discussions.