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Canadian judge promises quick ruling on ABCP issues

Wed Apr 23, 2008 4:28pm EDT
By Lynne Olver

TORONTO, April 23 (Reuters) - A Canadian judge will give a short ruling as quickly as possible on challenges to a plan to restructure Canada's frozen asset-backed commercial paper market, as the clock ticks down on a noteholder vote planned for Friday.

Ontario Superior Court Justice Colin Campbell said on Wednesday that under normal circumstances, he would "love to take a week" to decide on the various motions put before him to alter or delay the plan to restructure and revive the dormant market for nonbank ABCP. This C$32 billion ($31 billion) market seized up last summer.

But Campbell told the assembled lawyers that he feels he must do something "in a hurry," and he plans to decide on key elements as quickly as he can.

An investor vote on the restructuring plan is scheduled for Friday.

Campbell asked that the deadline for noteholder ballots and proxies be extended to 8 p.m. on Thursday (midnight GMT), instead of 5 p.m.

The judge did not specify when his decision will come, but said that it will be short, with his full reasons to follow later.

Lawyers for various Canadian companies have urged the judge to exclude or modify the broad legal releases in the restructuring plan that protect participants in the plan from lawsuits. The companies want to be able to pursue claims against the banks and advisers that sold them the ABCP.

The commercial paper was issued by nearly two dozen nonbank trusts, and was touted as a secure, short-term investment. However, the Canadian nonbank ABCP market fell apart last August, when concerns mounted over U.S. subprime mortgages, and investors' funds have been stranded while a restructuring was hammered out.

The plan, which was developed by institutional ABCP noteholders such as Quebec's Caisse de depot et placement and financial cooperative Desjardins Group, calls for various issues of short-term notes to be exchanged for longer-dated ones.

Some Canadian companies also asked Campbell to declare the corporate ABCP noteholders a separate class of investors, so that a majority of this minority group would also have to approve the restructuring deal.

In total, companies and wealthy individuals have an estimated C$9.5 billion tied up, or about a third of the total. The large institutions that created the restructuring plan own about C$22 billion.

Unlike hundreds of retail ABCP investors who were sold the notes by Canaccord Capital Inc (CCI.TO: Quote, Profile, Research) and Credential Securities, the corporate investors have not been promised a full refund.

Peter Linder, who represents several energy companies, said on Wednesday that his clients should not be in the same voting class as retail investors who will get back 100 cents on the dollar. Linder compared this to "stuffing the ballot box," because the roughly 1,800 retail investors outnumber all other types of noteholders.

Lawyers for the committee of large ABCP investors that crafted the restructuring plan argued that the Ontario court could not change the plan, despite the objections raised by corporate noteholders.

If the court decides that the legal releases for banks and other parties are illegal, or that the proposed single classification of noteholders is invalid, then the entire plan would be "null and void," Goodmans LLP lawyer Benjamin Zarnett told Campbell.

Banks that provided the assets underlying the ABCP have contributed to the restructuring plan in several ways, Zarnett said.

"They cannot be ordered to do what they've agreed to do for any other plan," Zarnett said.

($1=$1.02 Canadian) (Reporting by Lynne Olver; Editing by Peter Galloway)

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