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ABCP plan misses another deadline

November 26, 2008| Mark Noble and Craig Sebastiano

The proposed plan to restructure third-party asset-backed commercial paper was delayed again this week. The holdup is mostly due to the complexity of the restructuring, the large number of participants involved in the process and current market conditions.

"We acknowledge that it's taking longer than we would wish and we apologize to all stakeholders for this further delay," says Purdy Crawford, chairman of the Pan-Canadian Investors Committee for Third-Party Structured ABCP. "The spirit of co-operation that has prevailed among the participants to the restructuring continues, and we are focused on getting this deal done as soon as humanly possible."

Despite the delay, the committee says it has made significant progress over the course of the past several weeks toward settling issues and completing the required documentation to implement the restructuring.

The restructuring plan was created pursuant to the Companies' Creditors Arrangement Act (CCAA) and has been approved by the Superior Court of Ontario.

Participants involved in the restructuring include the court-appointed monitor, Ernst & Young, as well as the asset providers, the Canadian banks, credit-rating agency DBRS, and BlackRock, which will become the asset administrator at closing.

Another missed deadline has some concerned that it may be a long while before ABCP is unfrozen and investors start to get their money back.

The money of the more than 1,800 retail investors, who mostly bought notes through Credential Securities and Canaccord Capital, remains frozen. It's now been almost eight months since they gave approval to a plan they thought would be expediting the process to get their money back.

"If this deal terminates, the Credential and Canaccord deals are null and void, and our people won't have their money," says independent industry analyst Diane Urquhart, who is a consultant to the legal team representing retail note holders. "Canaccord and Credential have each respectively set aside the cash, at least by letter of credit. They've got the cash earmarked to provide the payment; it's just sitting there on the other side of the wall waiting for the implementation of the plan."

Urquhart outlines that there remain no other legal barriers to the ABCP restructuring plan. The last appeal failed earlier this month. Basically, it's a case of crossing the finish line. Urquhart is beginning to wonder if some of the major players most notably the large international banks that are major lenders are really committed to seeing the deal through. Many of the international financial institutions have been hit hard by the global financial crisis.

"I think people are working in good faith, but we're in a financial crisis," she says. "The international banks involved are Deutsche Bank, Merrill Lynch (which is now owned by Bank of America), UBS, Royal Bank of Scotland and Citigroup, which is teetering with a bailout package. The major players involved are in new financial circumstances and are not compelled to close, even though they've agreed to close and the court has approved."

Last year's restructuring of securities law by the federal government made foreign holders of credit default swap contracts exempt from the authority of the CCAA protection. According to Urquhart, the involvement of the international lenders, which are crucial to the success of the restructuring, remains an act of good faith.

"While we believe that if they extend the agreement they have endeavored to continue to support it," she says, "they've got the prerogative to let this go month by month for the next seven years unless the judge says there is evidence that there isn't good faith intent to close. Ontario Superior Court Justice Colin Campbell does have the authority to remove the court stay on the commercial paper owners. The consequence of that is we are free to enter the courts and file lawsuits."

A spokesperson from the Investors Committee told that all of the restructuring plan participants, from the asset provider to the liquidity providers, have agreed to the restructuring plan and remain committed to it.

In the meantime, Urquhart says the retail note holders will be looking for other avenues of restitution through regulators. First up is the Investment Industry Regulatory Organization of Canada (IIROC). Urquhart says she and lawyers representing the retail note holders will be meeting with Susan Wolburgh-Jenah, president and CEO of IIROC and her staff next week.

"IIROC's October 17 compliance review found that securities dealers did not conduct due diligence and did not explain risk to the retail market. We are asking they use their authority as a self-regulatory organization authority to lay allegations of breach of the Know-Your-Client rule," she says. "The remedy we're suggesting is that they repurchase the ABCP in its present form."

Filed by Mark Noble,, and Craig Sebastiano,


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