Thursday, April 10, 2008
Canaccord Capital Inc. has sealed a deal that will repay almost all of
its retail clients the money they invested in ill-fated asset-back
Under the offer, unnamed third parties will buy notes from more than
1,400 Canaccord clients who have individually invested less than $1
million. Canaccord will then top up the amount paid so that investors
are not out of pocket.
Investors will also be entitled to share in any interest that has
accumulated since the paper was frozen in August with Canaccord chipping
in any money held back to cover restructuring costs.
"This is a deal that we're very proud of," Canaccord's chief operating
officer Mark Maybank said in an interview. "This is a deal that we've
worked on for months. And this is a deal that protects the best
interests of our clients."
Canaccord clients bought almost $270 million worth of the paper. Those
eligible to take up the offer hold just over half that amount, but
represent 97 per cent of the clients affected.
The offer comes after a number of investors complained they had been put
into ABCPs -- notes secured by mortgages, or other assets such as car
loans -- through Canaccord without their knowledge or only after being
assured the products were risk-free. But last August, the market for
some of the notes collapsed in the wake of increasing defaults of
subprime mortgages in the United States. To prevent a complete free-fall
in value, institutional investors and other market participants agreed
to stop trading the $32 billion worth of tainted ABCPs held in Canada,
freezing not only the notes they held but also the approximately $320
million held by retail investors.
Since then, a restructuring committee led by lawyer Purdy Crawford, has
come up with a plan to exchange the frozen notes for longer-term notes
that would likely trade at a discount unless held to maturity, which
could be as much as nine years away. That proposal is to be voted on
April 25. If it passes, noteholders will lose the right to sue for
losses suffered, even if they voted against the plan.
But to be approved, the plan requires the consent of a majority of
noteholders who vote, throwing the decision-making power clearly in the
hands of the retail investors who had been overlooked when the
restructuring plan was developed. Yet these investors outnumber the
institutional investors about 10 to one. Since the announcement of the
plan, the retail investors have made it clear they would likely vote no,
demanding nothing less than 100 cents on the dollar.
And with Canaccord offering full payment, the vote outcome will now
likely be in favour.
But Canaccord clients aren't jumping up and down for joy yet.
"It's not done until it's done," said Victoria's John Phillion who had a
large amount of his life savings in ABCPs at Canaccord.
"I just hope to God that everything they promise goes through as
stated," he added. "I hope there's not any lurking undercurrents that
ruin what's been the first nice day in seven months of my life."
Brian Hunter, a Canaccord client from Calgary, said he was "cautiously
optimistic" about the deal. "We'll wait for [the cash] and when we see
it then we'll high-five, but not until."
Hunter set up a Facebook group that brought together retail investors
who had gone largely unnoticed. Phillion credits the group with getting
"Thank God for the power of people getting together and writing these
hundreds of letters and putting pressure on these companies to do what
But some investors still face an uncertain future.
Credential Securities Inc., the investment dealer for Canadian credit
unions, has about 335 clients with $48 million tied up in ABCPs. On
Monday Credential announced it was in discussions with industry parties
looking for a solution for its clients. Credential had no update on
Wednesday other than to confirm it was still working on a solution and
hoped to make an announcement in the near future.
© The Vancouver Sun 2008
Copyright © 2008 CanWest Interactive, a division of CanWest MediaWorks
Publications, Inc.. All rights reserved.
CanWest Interactive, a division of CanWest MediaWorks Publications,
Inc.. All rights reserved.