Investors Scrutinizing the Regulators

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Fox Guarding the Hen House




Crawford warns of investor losses

Hints At Sweetener

Duncan Mavin, Jim Middlemiss And John Greenwood


Friday, March 28, 2008

As Purdy Crawford gets set to meet face-to-face with retail investors in Canada's asset-backed commercial paper market, he warned they will get little back on their investments unless a proposed restructuring goes through as planned, while also hinting there may be a sweetener for the out-of-pocket investors.

If the plan fails to get the go-ahead, retail investors "get damn little," Mr. Crawford said yesterday. "That's not a threat. It's a reality."


Lawyer Purdy Crawford, seen yesterday in Toronto, said he had not realized the number of ordinary ABCP holders.


Mr. Crawford is head of a committee that has tabled a restructuring plan for the $32-billion of frozen paper. The success of that plan now rests with hundreds of small investors who have the chance to vote on it at the end of April.

While the plan has the backing of holders of most of the paper by dollar value, many of the smaller investors are thought to be against the plan that will see them take a big haircut on their initial investments.

They will also lose the right to sue the people who sold them the notes in the first place.

Significantly, the retail investors will have the final say in a vote that requires approval by more than 50% of the voting noteholders, which gives the little guys a lot of influence.

"Because of the vote, the retail investors have the possibility of getting more on the table than what this rather good restructuring gets them," Mr. Crawford said in an interview.

He begins a cross-Canada road show in Toronto on Monday, when he will meet with small investors in a bid to get a yes vote.

Mr. Crawford expressed sympathy for retail investors and said he was unaware until recently how many ordinary Canadians had bought the tainted paper.

His team, which includes bankers and lawyers, also hinted yesterday that there could be a sweetener in the deal to make sure the vote goes through.

He would not give clear details of what this could mean, although the Crawford team said liquidity was a key issue for small investors, and also said a third party could be involved in the next twist to the saga.

"Keep your eyes and ears open," Mr. Crawford said. "All kinds of things" could be considered to help retail investors out, he added.

A top-up to make small investors whole seems unlikely, though one option could be for companies that sold the paper to make up some of the difference between the par value and the market value of the restructured notes, sources said.

A source close to the restructuring said the Street is expecting some kind of "wrinkle to be put in the plan for small investors." There are a number of scenarios being bandied about. "Purdy doesn't want to tip his hand."

The proposed restructuring, which has put the notes into Companies' Creditors Arrangement Act protection, could be amended to accommodate a change to the terms in favour of retail investors, legal sources said.

"I'm rather confident small investors will be able to take advantage of their bargaining power," Mr. Crawford said.

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