Tuesday, April 22, 2008
By Regan Ray
With numerous hurdles still to cross, the man leading the restructuring
effort for Canada’s $32 billion asset-backed commercial paper market is
confident the next vital step in his plan will proceed as planned.
“We’re pretty confident the [noteholder] meeting will happen on Friday,”
lawyer Purdy Crawford told an audience of the Toronto CFA Society this
Crawford chairs the Pan Canadian Investors Committee for Third Party
ABCP, which has been working since August to negotiate a plan to
restructure $32 billion in ABCP notes that are currently frozen and
under court-approved bankruptcy protection.
There are roughly 1,800 retail investors holding the affected ABCP
across Canada. Under the restructuring plan, investors would receive
newly created notes with maturation dates of an expected nine years
(although some could last up to 45 years) to replace the original
short-term notes they bought.
What the value of these notes will be on the open market is impossible
to say, but Crawford is confident an over-the-counter market will crop
up for those who don’t want to wait the nine years to unload the notes
-- should the plan pass.
“We would expect over time that what I call a ‘fairly healthy market’
will develop,” said Crawford. “We’re pretty optimistic it will be a
pretty good market.”
Before arriving at today’s discussion, Crawford and representatives from
J.P. Morgan Chase and law firm Goodman’s were at Ontario court
proceedings related to the restructuring plan. With the noteholder vote
scheduled for three days from today, there are still hearings in
In particular, some parties involved are opposed to the master release
clause, which essentially relieves all sellers of the original paper
from any future lawsuits. In order to receive notes under the new plan,
investors must sign the release.
As well, today’s hearings are looking into a possible delay of the
noteholder vote in order to allow investors further time to pore over
the huge and complex package of documents they have received.
The upcoming vote is vital, as a failure to pass the plan would
essentially squash the seven-month negotiation effort, a long and
difficult process that surely none involved wish to repeat. The long
series of negotiations also brought Canada’s big banks on board to
assist with the necessary margin funding facility. The committee said
today it has approximately $23 billion in dedicated funding available in
the event of a collateral call.
In order to pass, the plan requires votes in favour from those
accounting for two-thirds of all the affected notes by dollar amount, as
well as from at least half of all voting noteholders (every investor
receives one vote, regardless of how much paper held).
While Crawford appears to be generally optimistic about the future of
the plan, he did express some concern today about the rushed timing for
voting that Credential Securities clients are facing.
Last Friday, Credential, which is the full-service investment dealer for
the Canadian credit union system, announced a relief plan to buy back
the affected ABCP notes from its clients at par value. This announcement
came right on the heels of a similar announcement from Canaccord Capital
Corp. The two firms were substantial sellers of the paper to individual
Because the Credential relief offer came so late, investors don’t have
much time to get their voting proxies in before the deadline.
The Credential and Canaccord plans only take care of those invested
under $1 million dollars. Left hanging, then, are corporate treasury
investors and wealthy investors who are heavily invested in the frozen
ABCP and are looking to get their money back.
So, also in court today, these investors are asking the judge to juggle
the classifications of noteholders around, in order re-classify them in
a way that would give them greater power within the voting universe on
Friday. How the judge will rule is impossible to speculate on, Crawford
There is a lot riding on Friday’s vote, and Crawford is nothing but
optimistic. Throughout the process, he has publicly declared his ongoing
concern and empathy for the small, individual investors who have been
waiting more than seven months to get word on the state of their
“There were a lot of very concerned and upset people,” he said today,
remembering the cross-country tour his committee did to promote and
explain the restructuring plan.
“I’m sure this [plan] will be approved,” he added. “But if it’s not, if
there is a tragedy, it will be that these people will not get paid.” IE