ABCP group expected to
July 3, 2008 at 11:53 PM EDT
Investors stuck with frozen asset-backed commercial paper could begin to
see their holdings thawed not long after an appeal court ruling that's
expected in a matter of days.
The committee overseeing the $32-billion restructuring of the frozen
paper is planning to move quickly to close the deal should the Ontario
Court of Appeal dismiss a challenge to the fairness of the proposal,
rather than wait for any further appeals to run their course, said two
people familiar with the strategy.
Lawyers expect the appeal court will decide on the challenge by a group
of corporations by the middle of next week.
The committee doesn't want to wait on a possible appeal to the Supreme
Court of Canada by the challengers, the people said. That would force
the challengers, who include companies ranging from small miner Redcorp
Ventures Ltd. to airport manager Aéroports de Montreal Inc., to try to
stop the closing of the deal with an injunction.
The plan as it stands calls for swapping the seized-up paper, which
investors have been saddled with since last August, for new notes that
should trade freely, albeit at a discount to their face value. However,
the challengers are upset because the plan grants a measure of legal
immunity to players in the ABCP business, which the appellants say is
unfair and unlawful.
After a lower court approved the plan in early June, the committee held
off on closing the transaction because of the pending appeal. However,
with the courtroom drama dragging on, the strategy now is to try to get
the swap done without further delay. That would be a relief for
investors who bought the paper last year, thinking it was a short-term
place to park cash, only to find themselves mired in a restructuring
that has locked up their money for 11 months.
“The idea is to move to hit the switch and start paying,” said one
person familiar with the situation.
The legal strategy is based on the view that an appeal by the corporate
challengers to the Supreme Court would be a long shot if the plan is
upheld at both the lower and appeals court levels.
Much will depend on the wording of the appeal court's ruling, no matter
which way it goes. If it's a split decision by the three-judge panel,
that would likely open the door to a Supreme Court bid.
“There are still enough challengers that I think if their appeal is
thrown out by the Court of Appeal, I think some of them will still try
to get leave to appeal to go to the Supreme Court,” said Colin Kilgour,
a consultant who has advised many corporations on their ABCP holdings.
The corporate challengers have yet to decide whether they will push
their case to the Supreme Court if need be, said one lawyer working on
their behalf who asked not to be identified given that the appeals court
has yet to make a decision.
The Court of Appeal hasn't given a timeline for its ruling, but may want
to hand down a judgment before the middle of next week, when a
standstill agreement that has kept the ABCP restructuring from imploding
expires. The judges asked about the standstill during hearings on the
matter, which some in the room took as a signal that the justices are
cognizant of the time constraints.
The banks that are backing the restructuring in return for legal
immunity have been voluntarily extending the standstill, under which
they have agreed not to halt the restructuring and force a liquidation
of the assets backing the paper. But there is no guarantee they will
continue to do so indefinitely.
Click for more on ABCP