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Credential offers to buy ABCP from 335 clients

$48-Million Worth

John Greenwood

Saturday, April 19, 2008

Gordon Beck, CanWest News Service

Investors are opposed to a plan proposed by a group led by the Caisse de depot et placement du Quebec, above, to restructure ABCP by converting it into term notes maturing in about nine years.

Credential Securities Inc. has tabled an offer to repurchase about $48-million of stalled asset-backed commercial paper held by retail clients.

Under the proposal, the Vancouver-based investment dealer would buy the notes at 100 on the dollar from about 335 individual investors.

The offer, made to clients with up to $1-million of paper, comes in the wake of a similar offer from Canaccord Capital Corp. to buy $138-million of notes from 1,400 of its retail customers.

"It's another step," said Brian Hunter, a Calgary-based investor who has been pressuring for a better deal on behalf of individuals caught up in the meltdown of the ABCP market.

But there's a catch. The offer is conditional on the success of a plan to restructure the $32-billion ABCP market. Noteholders are to vote on the plan on April 25.

Though retail holders account for only about 1% of the market, they are the most numerous investor class, meaning they will almost certainly determine the outcome of the vote.

Both the Credential and Canaccord offers hinge on unidentified third parties --believed to be institutions spearheading the restructuring-- that have agreed to buy the notes from them. In the case of Canaccord, the firm plans to sell its notes at a discount of about 40 on the dollar, making up the difference for its clients itself.

Last week, Canaccord unveiled plans to raise $60-million in an equity offering in connection with its ABCP repurchase. As a private company owned by the credit union system, Credential can't access the public markets. Observers speculate that both deals are the same, right down to the third parties who will own the notes and the price paid.

The bottom line for Credential is that it will be on the hook for about $19-million, a major chunk of which will likely come from its credit union owners.

The market for ABCP that was not sponsored by domestic banks seized up in early August as investors began panicking about exposure to sub-prime mortgages.

A group of institutions led by the Caisse de depot et placement du Quebec launched a proposal to rescue the stranded ABCP by converting it into term notes maturing in about nine years.

But the restructured debt is expected to trade at a significant discount, and many investors are unhappy about that. Next week, an Ontario Superior Court judge will consider whether some corporate investors should be allowed to sue the investment dealers that sold them the ABCP.

Another group left out in the cold is high-net-worth families whose significant holdings disqualified them from retail buyback programs, including 15 Canaccord clients and at least two from National Bank.

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