By Doug Alexander and Sean B. Pasternak
March 20 (Bloomberg) -- The fate of a C$32 billion ($32 billion) rescue
plan for Canada's commercial-paper market rests in the hands of a hog
farmer, a pastor and other individual investors like Layne Arthur.
Arthur, who has C$434,000 in commercial paper that's been frozen since
August, plans to reject the proposal because he's not willing to give up
his right to sue to recover his money sooner. Under the agreement
reached March 17, the 30- to 90-day debt will be converted to new notes
maturing as late as 2017.
"I'm going to sue,'' said Arthur, 52, who invested proceeds from the
sale of his Alberta farm on the advice of his broker, Canaccord Capital
Inc. "I want all my money back; you can't sell somebody something and
then not deliver on the product.''
Investors like Arthur, who include a university student, energy
executives and a retired flight attendant, have the power to scuttle
Canada's biggest debt restructuring if they vote against the 324-page
The plan requires the support of a majority of noteholders, who must
forego their right to legal action. Under Canadian bankruptcy rules, the
more than 1,500 individuals and at least 100 corporations and money
managers who own the commercial paper can vote on the plan.
A defeat of the proposal may lead to a collapse of C$32 billion in
asset-backed commercial paper, which is also held by some of the
country's biggest pension funds and lenders such as National Bank of
"We want to avoid having the noteholders endure more anguish than is
necessary,'' said Toronto lawyer Purdy Crawford, who spent almost seven
months crafting the agreement and now plans to meet investors in five
cities to sell it. "The alternative to this plan is the liquidation of
some or all of the conduits, which as I've said would lead to
Some individual investors say the Crawford plan leaves them with two
unappealing options: recover most of their money when the notes mature
within nine years. Or they can try to sell the debt once trading begins,
assuming the plan is approved in votes scheduled for April. The debt may
trade at 60 cents to 80 cents on the dollar because of the decline in
credit markets, according to analysts including Colin Kilgour, who is
advising clients of Vancouver-based Canaccord.
"There will undoubtedly be certain investors who are going to react
strongly and potentially pursue legal channels to get those releases
struck down,'' Kilgour said. "If each retail investor gets a vote, then
that could really swing things.''
Murray Candlish, 51, a retired hog farmer in Daysland, Alberta, says he
can't wait nine years to get his C$350,000 investment back.
"We trusted these people to put our savings into something that was
safe,'' said Candlish, who invested with Credential Securities Inc.,
through his Battle River Credit Union. "And now they want us to take 60
cents on the dollar and be happy about that?''
Jane Mitchell, a spokeswoman for Credential in Vancouver, didn't return
a call seeking comment.
Investors like Candlish have more clout because Canadian bankruptcy laws
require that restructuring plans be approved by a majority of creditors.
The plan also needs the support of investors holding two-thirds of the
value of the debt. The plan fails if it doesn't win both approvals. The
two-thirds support is assured because institutional investors such as
the Caisse de Depot et Placement du Quebec, which hold a combined C$21
billion, back the plan, Crawford said.
Hands Not Tied
"It actually gives me a vote,'' Candlish said. "For a while I thought my
hands were tied and I virtually had no choice, except to go along with
what they were proposing.''
Some investors say the risk and costs associated with a lawsuit is worth
it, and they may band together in a class-action suit.
"This is the most egregious financial scandal I've ever seen,'' said Ted
McFeely, president of a Calgary-based oil and gas explorer who invested
C$388,000 with Canaccord. "I'm not going to sit here like a little lamb
and let these guys shear me.''
About 1,400 Canaccord clients collectively hold C$269 million of the
frozen commercial paper in their accounts, according to the brokerage.
Canaccord Capital Chief Operating Officer Mark Maybank was out of the
country and couldn't be reached for comment.
Crawford's group has been working to restructure the debt after trading
of the commercial paper sold by non-bank dealers such as Coventree Inc.
halted in August as investors were concerned about possible ties to U.S.
For Garry Webber, a 60-year-old pastor at the Garden Foursquare Church
in Calgary with C$160,000 at stake, the crisis may force him to delay
retirement, and shows how tenuous investments can be.
"We just have to be sure that we aren't putting our trust in our
assets,'' the pastor said. "We've got someone bigger than that whom we
have to put our trust in.''
To contact the reporters on this story:
Doug Alexander in Toronto at
Sean B. Pasternak in Toronto at +1-
Last Updated: March 20, 2008 02:24