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ABCP plan expected to be approved

'Lot Of Hills To Go'; Judge says he'll likely sign off on $32B restructuring

John Greenwood

Wednesday, June 04, 2008


Just before noon yesterday lawyers involved in the restructuring of $32-billion of asset-backed commercial paper concluded their final arguments and headed off to lunch, some of them stopping in outside the courtroom to congratulate Purdy Crawford, the head of a committee that spearheaded the plan.

Ontario Superior Court Justice Colin Campbell has yet to issue a decision but he made clear several times during the proceedings which way he is leaning.

"Unless I see something remarkable in my notes, I'll approve," he said, signalling the conclusion of what he jokingly called the "semifinals" of the restructuring.

Lawyers for several note-holder groups say they will appeal if Judge Campbell gives the plan the green light. Because of the significance of the restructuring -- the ABCP crisis is one of Canada's biggest-ever market meltdowns -- the appeals process would be expedited.

Final approval of the plan would clear the way for the conversion of the frozen paper into long-term notes.

Proponents say investors will get most of their money back if they hold the notes until about 2017 when they mature, but it is far from clear if there will be a liquid market if they want to sell in the short term.

In comments to reporters, Mr. Crawford said the workout could be completed as early as the end of this month if there are no appeals.

However he suggested more court hearings are likely, saying "we still have a lot of hills to go."

The ABCP market fell apart in August after investors stopped buying the notes because of concerns about exposure to subprime mortgages.

When issuers were unable to roll over maturing notes, a group of major investment dealers and banks agreed to halt trading in the securities while they mapped out a restructuring plan.

If it is implemented, about 1,800 individual investors will get their money back thanks to "relief " plans put together by investment dealers.

Larger players such as pension funds like the Caisse de depot et placement du Quebec are also expected to recoup most of their investment.

But corporate holders are not so lucky and many are bitterly opposed to the plan.

They are particularly angry because it provides immunity from legal action to all the ABCP market participants, effectively taking away their right to go to court to get their money back.

In a bid to make it more palatable to them, the plan proponents made a last-minute amendment giving noteholders limited ability to sue, but only for fraud.

James Woods, a lawyer representing a group of Quebec noteholders, called the amendment "cosmetic." Mr. Woods said claims should not be straight-jacketed by restrictions that make it "extremely difficult" to establish a case.

Mr. Woods said Canada's reputation would be hurt if the restructuring goes ahead and several months later it becomes apparent there was fraud but the perpetrators were protected from prosecution.

But Judge Campbell complained that Mr. Woods had been unable to come up with a single example of such a case.

"Mr. Woods, it is time to put up or shut up on that one," he said.

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