March 24, 2008 at 4:00 AM EDT
The committee that designed a plan to salvage Canada's frozen $32-billion commercial paper market is pressuring financial institutions that sold the paper to do more to help the investors who bought it.
It took months of marathon meetings, fierce disagreements, and the occasional strong arm of Canada's central bank for Toronto lawyer Purdy Crawford and his committee to wrestle major pension funds and banks into agreement on a plan to fix the market.
One of their toughest tasks lies ahead. Having turned the plan over to an Ontario court, the committee must now convince hundreds of small investors - who haven't been able to access their money for seven months - to vote in favour of the plan on April 25.
With that in mind, Mr. Crawford will be seeking help for investors beyond what the committee's plan provides, looking to "convince through moral suasion some of the vendors of the paper to help the investors in other ways."
Those efforts are likely to be a key determinant of whether the plan passes.
"I'm not even going to read it," Ron Lawley, a retired computer technician from Nanaimo, B.C., said yesterday.
"If they want this thing to pass, then they're going to have to buy me out, because right now, with the little knowledge that I have at this point, I'm going to vote against it."
Mr. Lawley wants his broker, Vancouver-based Canaccord Capital Inc. [CCI-T] , to buy back the roughly $210,000 worth of asset-backed commercial paper (ABCP) that's stuck in his account.
"We're not destitute, but that was my bank account and it's frozen," he said. Canaccord has roughly 1,400 customers who collectively hold about $269-million of ABCP.
That's peanuts next to the $21-billion held by a number of major players, including banks, corporations and Crown corporations that have already said they will vote for the plan.
But the plan requires approval from the majority of investors who vote, and each counts equally, whether it's the Caisse de dépôt et placement du Québec, which holds $13.2-billion, or Ryan Laudien, a 60-year-old manager for a small chemical producer in Vancouver who, along with his wife, Mary, a school principal, has hundreds of thousands of dollars tied up.
"You probably only need 200 votes to put this thing under," Brian Hunter, another Canaccord customer, said yesterday. The Alberta oil-and-gas engineer is one of the more outspoken investors, having started an ABCP group on Facebook. Today, he will choose a lawyer to represent himself and a group of investors that he is forming, he said. It wants to be recognized by the Ontario Superior Court as a creditor of the paper market, and to have further participation in the process.
In a letter being mailed out to investors, Mr. Crawford says if the plan is not approved, the market could disintegrate and the paper could become worthless.
Mr. Hunter said he understands that, and "nobody wants to have $35-billion evaporate and end up in a fire sale." He's pushing for Canaccord and others to do more to ensure that he will get close to 100 cents on the dollar for his paper, before the vote.
Under the plan, investors who hold the notes until they mature will receive much if not all of their money back, the committee said. But the maturity dates are up to nine years, and many investors can't wait that long for cash.
"I am hopeful that an over-the-counter market will develop for the restructured notes," Mr. Crawford says in the letter.
Daryl Ching, managing partner of Clarity Financial Strategy who has been hired as an independent consultant by Canaccord, said any progress the committee makes in convincing financial institutions to lend into ABCP will help with the vote. He believes the committee wants institutions to provide limited recourse loans to investors, which would be backed by commercial paper. For instance, a bank might give an investor a loan worth 80 per cent of their ABCP until their notes mature.
Canaccord, meanwhile, is establishing a "relief program" for its customers. But "we don't have the ability or the capital base to buy it out directly from our clients," chief operating officer Mark Maybank told Bloomberg News.
"We are going to be, I think, reluctant to support the plan," Gary Webber, 59, a Calgary pastor with retirement savings in ABCP, said yesterday. "The retail investors' interests are not being attended to. We are going to try with everything we can to encourage the large players in this to pay us out so they don't have to worry about us voting against the plan."