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Bank lawyer warns of time ticking in ABCP saga
ABCP Restructuring

Jim Middlemiss

Thursday, December 18, 2008

  A lawyer for the foreign banks involved in the restructuring of the frozen $32-billion asset-backed commercial paper restructuring told an Ontario Supreme Court judge the "unthinkable" could happen if the there's no agreement to restructure the paper by the end of the week.

Peter Howard, who acts for a group of foreign banks, including Deutsche Bank AG, HSBC Holdings plc and Citi Group Inc., needed to complete the restructuring, stressed that "time is exceptionally short."

Mr. Howard said his clients are "ready and willing to close the existing deal," but warned that an agreement among his clients not to terminate their trades ends at midnight Friday.

Justice Colin Campbell

Chris Young for National Post


After that, it's anyone's guess what will happen, though Mr. Howard told the court that his clients would "continue to act responsibly. We will continue to assess [the situation]" and look at "alternatives."


His comments at the hearing before Justice Colin Campbell to extend a current stay order -- which excludes the foreign banks -- until January 16, 2009, raised the concerns of retail noteholder's counsel, Arthur Jacques, who asked the judge to consider requiring the foreign banks to provide an eight-hour notice window in the event they decide to move on the assets. That would allow retail noteholders to "assess what remedies at law are available to us."


He said it would be "extremely bizarre for this to collapse at this stage," but noted his clients feared a "doomsday scenario."


Justice Campbell said he didn't think it wouldn't be appropriate for him to make such an order, and tried to calm the waters, noting that he didn't interpret Mr. Howard's comments to be a threat.


Mr. Howard said the judge did not have the jurisdiction to make such an order and Mr. Howard reiterated that his client's support the existing deal and hope it can close.


Justice Colin Campbell noted that the parties "are extremely close [to a deal]" and he agreed to extend a stay order until January16, 2009. He also agreed to "administrative amendments" impacting the credit default swaps and to changes that would allow the conduits, which are holding the paper, to keep the cash that has been accruing in them -- about $6-billion to date -- which avoids a taxable event at year end.


The foreign banks at the negotiating table have consistently held off exercising their rights under the swaps. They are currently owed billions of dollars. There is an agreement in principle to extend a moratorium on collateral calls by 14 months and to move the spread triggers on the notes. However, the Pan-Canadian Investors Committee overseeing the restructuring requires an additional $9.5-billion in security to close the deal to address the additional risk the banks take on by extending the spreads.


Fred Myers, a lawyer for the Pan-Canadian Investors Committee leading the restructuring, told the court that the committee "is canvassing external sources. Progress is being made."


The external parties is believed to be the federal government, which has warmed to the idea of providing some type of support, though Finance Minister Jim Flaherty said it would not be $10-billion


The credit line would only be tapped if they use an existing $39-billion in collateral and margin facility already in place.


Earlier Justice Campbell shut down attempts by a lawyer Allan Sternberg, acting for a noteholder who opposes the deal, to argue that the changes sought were out of line. He said he didn't have enough time to assess the proposal, which was served on the parties at 10 pm the night before. He called it an attempt to "make piecemeal amendments" to the original restructuring plan, which includes controversial legal immunity provisions that prevent lawsuits.


Justice Campbell said that if Mr. Sternberg's attempt was to re-open the deal and re-argue the issue of the legal releases, the Supreme Court of Canada had already ruled against his client. "Good luck to that," he said. "This is an extremely serious matter that evolves beyond your client."

Copyright 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

Copyright 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

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