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Investors seek U.S. bidders for their piece of "$30 billion carcass"

April 03, 2008| Mark Noble

 

 

Retail investors with their savings frozen in non-bank-sponsored asset-backed commercial paper are considering selling their voting rights for an upcoming restructuring deal to U.S. hedge funds if they can't secure remuneration from Canadian sponsors.

 

Juroviesky & Ricci, a law firm representing a group of retail investors stuck with ABCP, issued a release on Thursday saying that since it failed in its initial attempts to persuade members of the Pan-Canadian committee to buy its clients' frozen paper using moral suasion, it will be looking to non-traditional methods, such as auctioning the retail holders' voting and economic rights to the highest bidder.

Lawyer Henry Juroviesky says his firm is looking south of the border for buyers, soliciting bids from U.S.-based private equity and hedge funds known for buying distressed debt.

"The impression we gleaned from the Pan-Canadian committee was that they felt that they had no moral duties to the class of retail investors, and that a deal, even if forthcoming, would most likely only benefit the persons needed to secure a successful vote on the restructuring," Juroviesky says. "We feel that an auction of all my clients' economic interests would add significant value to those looking for an alternative to the proposed restructuring."

Juroviesky & Ricci has retained Blackmore Partners, which has established contacts in the private equity and hedge fund markets, to seek a sale of its clients' economic interests in ABCP at the highest value.

"Blackmore will be qualifying buyers and handling the sales process," Juroviesky says. "We already have preliminary expressions of interest to purchase our clients' interests, and we are expecting these offers to increase as this process gathers steam."

While the estimated 1,600 retail investors hold a very small fraction of the more than $30 billion in frozen ABCP, they hold the balance of power when it comes to the vote for the Pan-Canadian committee's restructuring deal on April 25.

One of the named clients of Juroviesky & Ricci is Brian Hunter, a Calgary-based engineer who has $658,000 of his savings frozen in ABCP he purchased from Canaccord Capital.

Hunter says he doesn't know what sort of opportunities lie with U.S. hedge funds or private equity, but he believes that all possibilities should be explored before investors decide to vote down the restructuring deal. It puts the pressure on those in favour of the restructuring deal to buy off the retail investors for a fair price if they want their votes.

"Let's go look and see what's out there. We have the voting strength. This thing will only be passed if the individual investors vote for it. Who's driving the truck here? If they want to take the driver's seat, they could certainly make an arrangement."

"The committee stands to lose approximately $22 billion if the restructuring fails," adds Juroviesky. "So, there is some leverage there for a party whose threats to vote it down are believable."

Right now, Juroviesky is exploring deals that would allow an institutional fund to buy out the retail investors for voting rights and then get a better deal for the ABCP and share with the investors any profits they get from that.

"We feel that there is an opportunity for a well-funded institutional fund, with a longer liquidity time frame, to extract more value from the Pan-Canadian Investor committee than what we have been offered to date, and to accordingly offer my clients an appropriate deal, including a percentage of any upside," Juroviesky says.

Hunter says he would consider some form of profit-sharing arrangement, but he doesn't know what's out there. He says the sheer size of the frozen paper means there is immense opportunity from which lawyers and accounting firms are already earning a steady fee so why not hedge funds?

"Certainly hedge funds are also looking for opportunities as well. I don't know what the answers would be. It might be a two-tiered deal: they give me some cash now, and then they give an option for something if they happen to get a significant upside," he says. "There is a $30 billion carcass laying there; it's going to be chewed up."

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(04/03/08)

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