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Canada's ABCP group grilled over fix-it proposal

Mon Mar 31, 2008 3:02pm EDT


By Lynne Olver

TORONTO (Reuters) - The first of five sessions meant to inform retail investors about a fix-it plan for Canada's C$32 billion ($31.1 billion) asset backed commercial paper market only served to confuse many of them, participants said.

"I didn't understand 80 percent of what was said here," said investor Walter Kushnir at Monday's meeting. "Why is that? I'll tell you why. The process was not fair, and the result was not fair."

Retail investors were not represented on a committee that hammered out a proposal to restructure the market, and none of the players on the committee will suffer personal losses as a result of the freeze-up of the ABCP market, Kushnir told Toronto lawyer Purdy Crawford. Crawford led the restructuring committee over seven months.

"People like me are completely confused, we're confounded," Kushnir said. "We stand to lose an awful lot on a personal level. Our families stand to lose an awful lot."

Dozens of people took to the microphones at the Metro Toronto Convention Centre to detail how their funds became trapped in what they had assumed to be safe investments until the nonbank ABCP market seized up last August due to wider credit-market jitters.

Crawford said several times that he sympathized with retail investors, and he acknowledged that the proposed restructuring is not perfect.

"A perfect plan would get 100 percent of everybody's money back today, that is not in the cards," Crawford said at the two-hour meeting.

All investors involved, no matter how much money they have at stake, get to vote on the restructuring proposal on April 25. But the retail investors, who collectively have C$350 million or so tied up, far outnumber the big institutional investors, and have the power to scuttle the deal.

The plan calls for new asset-backed notes to be issued in place of the locked-up notes, but retail investors would have to wait years for the new notes to mature, or take their chances selling them in a secondary market, possibly at a steep discount.

Roughly 1,800 retail investors are believed to hold the affected ABCP, which was issued by 20 trusts. Of those, about 1,400 are clients of Vancouver, British Columbia-based brokerage Canaccord Capital Inc (CCI.TO: Quote, Profile, Research), which has said it cannot afford to buy out their positions.

The proposal shields all ABCP market participants from potential lawsuits -- a sore point with many of the investors at Monday's meeting. "I don't think it passes the smell test," one said.

Brian Iler, a Toronto commercial lawyer, said that a long list of investment firms had bought back retail clients' holdings of nonbank ABCP at 100 percent of face value, with the exceptions of Canaccord and Credential Securities Inc, an investment dealer for various Canadian credit unions.

"There are a number of us who are organizing as retail investors, who want to be taken out, we want to be taken out and get our value back," Iler said. "That has not been presented as a solution to date."

If the restructuring fails, "Canaccord will be up to its neck in lawsuits," said Sandy Currie, an Oakville, Ontario, resident with about C$205,000 tied up in the ABCP market.

Canaccord executives have said they are working on a relief plan for their clients, along with other parties.

Canaccord Chief Operating Officer Mark Maybank said last week that this could include buying retail investors' holdings for a specific percentage of the initial value.

Crawford and the committee's advisers are heading to Montreal, Calgary and Edmonton, Alberta, and Vancouver, British Columbia, this week to meet more retail investors.

($1=$1.03 Canadian)

(Reporting by Lynne Olver; Editing by Peter Galloway)

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