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ABCP team 'ready to make deal' with retail investors

John Greenwood
Wednesday, March 26, 2008

Amid a growing outcry from angry retail holders of frozen asset-backed commercial paper, the head of a committee overseeing the restructuring of the $32-billion market says he is ready to "make a deal."


"I can't say what the deal will be - I can just tell you we will make a deal," said Purdy Crawford.


Allen McInnis/Canwest News Service

Purdy Crawford leads the panel seeking a restructuring of frozen asset-backed commercial paper.

Mr. Crawford told a business luncheon in Toronto that it may be necessary to improve the terms of the restructuring for retail holders of ABCP in order to win their vote of approval. But he offered a word of caution: "I'm hopeful retail investors will get some good advisors and come to the table realistically."

Under the proposed arrangement, all investors will receive new restructured notes with maturities based on the underlying assets. But because of the ongoing credit crunch, the notes are expected to trade well below par, at least in the near future. Indeed, many analysts predict that even if investors can hold them to maturity, they may still end up facing losses.

Many retail investors who own the notes are angry because they say they were never warned by the banks that sold it to them about the associated risks. Indeed, some claim they were misled. Last week, a noteholder group led by Brian Hunter, a Calgary-based engineer with about $650,000 of his savings tied up in seized up ABCP, said they would block the restructuring unless they are made whole by the banks and financial institutions that are backing it.

More than 80% of the notes are held by a few dozen companies and institutions such as the Caisse de dépôt et placement du Québec. But there are about 1,600 retail investors -- putting them in the majority -- and that is key because in order for the restructuring to proceed it must get the nod from more than half of all note holders.

Mr. Crawford said he expects the crucial noteholder vote to take place at the end of April. He said he is optimistic the restructuring will get the green light, in which case it could be completed by the middle of May.

"I've talked to a fair number of the noteholders and some of them are angry, justifiably from their perspective," he said. "They know they have some power and are not going to hesitate to use it. My real concern is that they will overplay their hand and the whole thing will come crumbling down."

Mr. Hunter said he is pleased the voices of individual noteholders will be heard. "This is about getting a seat at the negotiating table," he said.

The market for non-bank sponsored ABCP seized up in early August after issuers were unable to roll maturing paper. A group of financial institutions led by the Caisse, the biggest player in the market, launched a rescue plan known as the Montreal Proposal on August 16.

Under the plan, the old ABCP would be converted to floating rate notes with maturities linked to the underlying assets. The backers hoped that the credit markets would right themselves by the time the deal was done, so that the new notes would trade close to their face value. Instead, the turmoil grew worse, causing some of the participants to become less supportive. Indeed, Mr. Crawford said, there were times when he feared the restructuring would fall apart.

However, conditions have improved significantly over the past two weeks and many industry insiders are already breathing sighs of relief.

One of the most controversial aspects of the restructuring are the legal releases provided for all the backers. The releases basically protect them from any law suits that might be filed by investors or other market participants.

Mr. Crawford defended the decision to include the releases. "What we did was the art of the possible," he said.

He said investors will likely get most of their money back if they hold their notes to maturity. However, where they trade in the secondary market that is expected to develop, "God only knows," he added.

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