Monday, March 17, 2008
By Regan Ray
The committee assigned to sort out the troubled asset-backed commercial
paper market in Canada filed an application to the Ontario Superior
Court of Justice today, asking for bankruptcy protection for the trusts
The Pan-Canadian Investors Committee for Third-Party Structured ABCP
filed an application under the Companies' Creditors Arrangement Act (CCAA),
a federal statute that allows for court supervision of debt
The committee is asking for the court to call a meeting of ABCP
noteholders to vote on its plan to restructure 20 of the trusts covered
by last summer's Montreal Accord. The plan affects $32 billion in notes.
The committee confirmed that an understanding has been reached with “a
group of Canadian banks” on participation in the plan. The committee
said both binding and non-binding understandings have now been reached
for more than 98.5% of the required margin funding facility, adding that
it is confident it will reach firm commitments but has other means
available should a shortfall arise.
“The committee has reached an understanding on the principal issues with
all major participants in the third-party ABCP market on how to address
the problems that are currently plaguing this market,” said Purdy
Crawford, chair of the committee, in a release. “The CCAA process
provides a court-supervised means of advancing the committee's plan for
this comprehensive and simultaneous restructuring of all affected ABCP,
giving noteholders an equal opportunity to vote on the plan under a
DBRS downgraded the ratings of 20 trusts under the Montreal Accord to D,
after the committee announced it had filed the application to the CCAA.
DBRS has maintained since August that the credit quality of the majority
of the assets held by the affected trusts is strong. “This continues to
be true,” the ratings agency said today, in a release. “Today’s
downgrade reflects the fact that the affected trusts are now subject to
a court-supervised process which, if successful, will see the
obligations of the affected trusts be restructured per the terms of the
DBRS noted that a CCAA filing is somewhat similar to one under the
Bankruptcy and Insolvency Act (BIA), yet under the BIA, the goal of the
bankruptcy process is to maximize the value of the remaining assets for
the benefit of creditors, while under the CCAA, the objective is for the
entity to remain viable. “Bankruptcy proceedings often end with a
liquidation of the bankrupt’s assets, whereas one of the goals of a CCAA
filing is to avoid liquidation of the assets,” it said.
According to CCAA rules, the plan must be approved by a majority of
noteholders (regardless of the size of their holdings) that vote at the
meeting, as well as by noteholders representing at least 66 2/3% of the
total aggregate principal amount of affected ABCP voting at the meeting.
Upon approval, a further hearing will be held before the court for its
final sanction of the plan.
“Details of the restructuring plan have now been substantially
completed,” said Crawford. “The committee is unanimously supporting the
Plan, and I am recommending that all noteholders approve the plan in
order to avoid a forced liquidation of conduits and the significant
losses that would likely ensue if the plan were not to move forward.”
According to the committee the plan, which was announced in December,
would give noteholders an improvement in the potential for value
recovery over time, a lower risk of margin calls, investment grade
credit ratings for the vast majority of the new notes and improved
transparency with regard to the underlying assets.
The committee said that all underlying assets in affected ABCP backed by
synthetic and hybrid assets will be cross-collateralized into one of two
Master Asset Vehicles (MAVs). Certain large noteholders that have agreed
to self insure by contributing approximately $8.5 billion to fund any
additional margin calls associated with the pooled assets supporting
their pooled notes, will participate in MAV1. As well, noteholders that
satisfy eligibility requirements will also have the option to
participate in MAV 1.
Meanwhile, all other noteholders will participate in MAV2, for which a
third-party margin funding facility will be established. A group of
Canadian banks has confirmed with the committee the terms of their
participation in a larger syndicate for the MAV 1 and MAV 2 required
margin call facility, according to a release.
The implementation of the plan is subject to a series of conditions, and
certain government and regulatory approval will be required. Upon the
CCAA filing, creditors of the affected trusts, including noteholders,
will be stayed from enforcing their claims. This court-ordered stay will
effectively replace the standstill agreement that was agreed to as part
of the Montreal Accord.
DBRS said it continues to monitor the situation for further changes.IE