BOYD ERMAN AND JACQUIE MCNISH
March 26, 2008
TORONTO — The large investors trying to finalize a fix for the locked-up $33-billion market in asset-backed commercial paper are focused on assuaging angry retail investors who threaten to derail the plan, the head of the restructuring committee said Wednesday.
“The big issue is retail investors,” committee chairman Purdy Crawford said at a Canadian Club luncheon in Toronto. “We have to, in a major way, turn our attention to how to deal with them.”
There are an estimated 1,600 individual investors who own more than $300-million of the stranded ABCP. Although the retail investors own just a fraction of the total troubled notes, the individual owners carry enough votes to block the majority approval needed for an Ontario court to bless the restructuring proposal.
Many small investors are demanding that they be paid 100 cents on the dollar for their ABCP in return for voting yes, even though some analysts estimate that the assets underlying the paper are only worth about 56 cents on the dollar, owing to the plunge in credit markets. An informal group of about 100 ABCP holders on Wednesday hired lawyers to fight for a buyout.
“We will make a deal,” said Mr. Crawford,
declining to give details or to commit to
getting small holders 100 per cent of their
Demands for a buyout are not the only stumbling block. Many investors are balking at giving up the right to sue banks that sold the paper and other players in the market, a condition of the restructuring.
The $33-billion market for non-bank ABCP has been frozen since August, when investors shunned the paper because of concerns about potential links to the U.S. subprime-mortgage meltdown.
Mr. Crawford's committee has been struggling since then to restructure the market by swapping the frozen paper for new bonds that can freely trade and will mature in up to nine years.
Last week, the committee filed a restructuring proposal as part of its successful application for court protection for the stranded paper. That workout plan is subject to a vote by ABCP holders on April 25.
Mr. Crawford said he is concerned that investors will “overplay their hand” and vote no. “It's a tough one to accept but you have to look at the alternative – collapse and lawsuits. Long, arduous lawsuits.”
That didn't stop an informal group of about 100 investors headed by Calgary oil and gas engineer Brian Hunter from retaining Toronto law Juroviesky and Ricci LLP to negotiate better terms.
The investors are angry that they have had no voice on the Crawford committee, lawyer Eli Karp said. He is seeking a deal that would allow retail investors to sell their frozen ABCP as soon as possible in exchange for their support.
“They need our clients' vote to win the restructuring and nine-year notes are not an option,” he said.
Most of the individual investors bought their ABCP from Canaccord Capital Inc., an independent brokerage firm.
“Canaccord certainly is willing to contribute, but we're unable to do all of it for two reasons,” said Canaccord chief operating officer Mark Maybank. “The first is that we don't have the capital base to do that, even with potential financing, and the second is that this issue is not solely a Canaccord issue.”
That means other members of the committee may be forced to help Canaccord with a buyback or interest-free loans to holders to preserve the whole restructuring. When asked where the money would come from for such a plan, Mr. Crawford said he had “no idea.”