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
"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
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
"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,"
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,