Investors Scrutinizing the Regulators

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Fox Guarding the Hen House




ABCP set to go after top court rejects appeal

John Greenwood and Jim Middlemiss

Friday, September 19, 2008


Graham Hughes for National Post

Purdy Crawford, head of the committee that drew up the ABCP restructuring plan.

  Retail holders of ABCP are breathing sighs of relief after the Supreme Court of Canada denied a challenge to a proposed restructuring of frozen $32-billion of asset-backed commercial paper, clearing the way for about 1,400 individual note holders to get their money back.

"We got pretty lucky is all I can say," said Brian Hunter, a Calgary-based oil and gas engineer who helped organize individual holders.

The lion's share of the frozen ABCP was held by companies and institutions but a small piece, $178-million, was held by about 1800 retail investors. In connection with the restructuring, those people will get their money back along with interest once the deal is completed, which could happen as early as the middle of October.

"I'm greatly relieved but it's been a long road," said Wynne Miles, a retail noteholder in Victoria.

A successful workout will remove a massive problem that has been weighing on the Canadian financial system for more than a year, freeing up liquidity and boosting confidence at a time when both are in short supply. Without it, analysts say, investors would likely lose all their money and the collapse of the trusts would send shock waves through global markets.

"I am pleased that the [ABCP workout] cleared its final legal hurdle this afternoon with the Supreme Court of Canada's decision not to hear an appeal of the Ontario Court of Appeal's ruling in this matter," federal finance minister Jim Flaherty said in a statement.

Under the restructuring, the frozen ABCP will be converted into long term notes maturing in about eight or nine years. The plan was bitterly contested by a small group of corporate note holders such as the drugstore chain Jean Coutu who complained they would face losses.

The Supreme Court appeal was their last chance to block the plan.

"I think it's a shame that a plan that is patently flawed received judicial sanction," said Howard Shapray, a lawyer for Vancouver-based Ivanhoe Mines Ltd.

Canada's third-party ABCP market seized up in August 2007 after investors began fleeing exposure to subprime mortgages and banks that had agreed to provide emergency liquidity declined to step up. As a result, holders were left unable to sell or redeem their notes.

Most of the paper that ended up in the hands of individuals was sold by Canaccord Capital Corp. and Credential Securities, both of whom played key roles in the deal to buy out the retail investors.

The most controversial aspect of the restructuring was a clause providing legal immunity for the banks and financial institutions that created and sold the notes, a provision that critics said would allow some players to avoid consequences for wrongdoing.

"Today's decision clears the last significant hurdle to completing our work," said Purdy Crawford, the head of an investors committee overseeing the restructuring.

The complex plan calls for the participation of more than a dozen banks and financial institutions, including some that have been significantly affected by the recent turmoil in financial markets. Observers say some of those players may have incentive to back away from the deal to address their own problems.

Financial Post