Monday, December 17, 2007
Allen McInnis/CanWest News
ServiceDespite failure to meet a
Friday deadline, Purdy Crawford is
confident that the committee will be
able to work through the ABCP crunch
by the new January deadline.
Holders of $33-billion of seized
up-asset backed commercial paper who
opt not to support a proposed
restructuring of the notes will be
left to fend for themselves, warned
the head of a committee overseeing
The proposal, which has yet to be
fully mapped out, must be approved
by at least 66% of noteholders in
each of 21 frozen trusts for the
restructuring to go ahead. But if
some trusts fail to win the required
support, those investors "would be
on their own," Purdy Crawford said
in an interview.
In other words, the investors would
have to fight it out with other
creditors for a share of the
remaining assets in what would
likely be a forced liquidation of
the trust - hardly a hopeful
Allen McInnis/CanWest News
Despite failure to meet a
Friday deadline, Purdy
Crawford is confident that
the committee will be able
to work through the ABCP
crunch by the new January
But some may decide that the
alternative is no better, since it
is expected that noteholders who
sign on to the restructuring will be
required to give their right to go
to court to recover losses, which
could exceed 50% for some trusts.
Mr. Crawford made the comments this
weekend after his committee missed a
key Friday night deadline for coming
up with a restructuring plan to put
before investors. Backers of the
so-called Montreal proposal have
agreed to a new deadline of Jan. 31.
However, this is the second time the
committee has had to ask for more
time, and observers say the delays
could erode support for the
restructuring, causing some
noteholders to try to turn to the
courts to get their money back.
One of the most serious challenges
facing Mr. Crawford's committee is
the quality of the assets underlying
the illiquid ABCP.
Of the $33-billion of assets held by
the trusts, only $3-billion is
traditional debt such as auto loans
and credit card obligations.
According to information released by
Mr. Crawford's committee, a further
$3-billion is subprime mortgages and
the remaining $27-billion is a
combination of leveraged and
unleveraged collateralized debt
Because of the market turmoil, many
of the CDOs held by the trusts have
lost significant value, triggering
In normal times, the trusts meet
those calls by issuing more notes.
But in the current environment that
would be almost impossible, even for
a restructured trust. The Crawford
committee is trying to persuade the
Big Five banks to take
responsibility for putting up cash
to cover margin calls. He is getting
support from the Bank of Canada,
which is said trying to persuade
senior management at the banks.
But sources said the banks are
reluctant to take the risk,
particularly at a time when they
have already been hit by deep losses
on subprime investments.
Negotiations between the two sides
reached an impasse on Friday as the
banks dug in their heels. They say
they shouldn't have to shoulder that
responsibility for margin calls
because they did not create the ABCP.
"Why should we have to take all that
risk," said a senior investment
dealer at one of the banks. "We
might as well just buy all the
Mr. Crawford declined to discuss the
details of the matter, but he
indicated that he believes that it
can be resolved.
"Various banks have different
motives for participating [in the
restructuring]," he said. "All I can
tell you is that they are now fully
engaged at a senior level."
The issue of collateral calls is
crucial because if they can't be
met, the CDOs would get unwound,
with noteholders losing most of the
value of their investment.
The ABCP market broke down in early
August after issuers were unable to
roll over maturing notes and
emergency liquidity providers
declined to step in. A group of
financial institutions led by the
Caisse de dépôt et placement du
Québec launched the so-called
Montreal proposal on Aug. 16, under
which the stalled ABCP would be
converted into longer-term notes.
But they have yet to map out a way
to do that.
The restructuring negotiations are
taking place against against the
backdrop of a worsening global
credit crunch. Last week, the U.S.
Federal Reserve, the Bank of Canada
and three other central banks
injected a total of $110-billion
into money markets in a bid to free
up liquidity and restore confidence
in the financial sector.