||One of the major
hurdles in front of a large group of retail investors who have their
money frozen in non-bank asset-backed commercial paper has been
passed — they have found a firm that can help them navigate the
complex legal web weaved by the ABCP restructuring committee. They
are not yet planning to sue those that sold them the now-frozen
paper. Instead, investors are hoping they can cut a deal before the
ABCP restructuring plan goes to a vote.
Brian Hunter and Ted McFeely, two of
the leaders of the investors' group have acquired the services of law
firm Juroviesky and Ricci.
Hunter, who has $658,000 of his
retirement savings frozen in ABCP, hopes that retaining the firm will
aid investors in getting their money back as soon as possible. The
proposed restructuring plan will turn most of the ABCP into long-term
notes, but Hunter says many of the retail investors need access to their
"We don't have any balance sheets to
hide this stuff on," he says. "The point is to get represented in the
process, to see if there can be modifications made to the restructuring
plan one way or another."
What the investors want ideally is to
be made whole, something they believe the big banks and ABCP sponsors
can afford to include in a revised restructuring deal.
Lawyer Henry Juroviesky says his main
goal will be to try to negotiate a deal under which the retail
purchasers of ABCP would be able to sell their notes immediately and
receive full value for their holdings.
Earlier this week, Diane Urquhart, an
independent financial analyst who will be advising Juroviesky and Ricci
on some of the financial details of the case, said it could cost
Canaccord $269 million to buy the ABCP from its clients who have their
"With estimated marked-to-market losses
of -40% to -60% on the non-bank ABCP, Canaccord's unrealized market loss
on a full cash buyout of its customers placed in non-bank ABCP would be
$108 million to $161 million, pre-tax," she said. "Using the average
corporate tax rate that Canaccord paid for the nine months ending
December 31, 2007, of 36%, the Canaccord unrealized write-down would be
in the range of $69 million to $103 million after tax."
Urquhart believes if Canaccord bought
the paper back, it would help its corporate reputation, while leaving
the firm with the option of taking legal action against the ABCP
sponsors who sold it the paper.
"Against this worst case for Canaccord
is Canaccord's right to sue for compensation from the other sponsors,
financial institutions and Dominion Bond Ratings Service, who
manufactured or distributed the flawed non-bank ABCP," she said. "Plus,
Canaccord can retain the restructured long-term notes and over the next
five- to eight-year term of these notes, if there is recovery in their
marked-to-market valuation or Canaccord is able to sell them at better
future prices in the secondary market, then Canaccord can book a
recovery of the write-down that it made in its fiscal 2009 year ending
March 31, 2009."
This type of litigious cycle is exactly
why the Pan-Canadian Investors Committee for Third-Party Structured ABCP
sought protection for the paper under the Companies' Creditors
Arrangement Act (CCAA) by an Ontario Superior Court judge. CCAA makes
legal action against all the firms involved in the restructuring process
Retail investors are left with two
choices: either vote against the ABCP restructuring deal, of which they
hold the majority of votes since one vote is awarded per note holder, or
work within the CCAA framework. For now, Hunter says they have chosen
"Right now I don't think that deal is
in anybody's best interest, but I would like to see us try to walk arm
in arm, like a 70-lawyer love-in, or rather make that a 71-lawyer
love-in now," he says.
Voting the restructuring plan down
could have significant consequences, stripping ABCP providers of
immunity from margin calls and forcing them to sell their holdings on a
hostile market for a fraction of their face value.
This has been the position of the
Pan-Canadian committee. However, this hard line may be softening. As
reported by other media sources, Purdy Crawford, committee chair, did
address the topic of retail investors at a Wednesday luncheon before the
Canadian Club in Toronto.
At the luncheon he admitted that the
committee has to turn its attention to working with the retail investors
to get the plan approved and that a "deal" may be in the works. He said
he is worried, however, that retail investors may use their balance of
power in the voting process to derail any deal that solves the ABCP
Filed by Mark Noble, Advisor.ca,