Monday, January 05, 2009
Canada's market for asset-backed commercial paper remains just as
illiquid as it was the day it seized up nearly 17 months ago but the
lawyers and financial advisors trying to rescue it have already billed
noteholders for nearly $200-million.
According to documents filed in connection with the proposed $32-billion
restructuring, lawyers for the investors committee, their financial
advisors JP Morgan and others had been paid or submitted invoices for
$199.1-million as of Dec. 8, 2008.
The lion's share of that money -- $87-million -- is going to JPMorgan,
the New York financial advisor contracted by the investor committee to
figure out how to convert the $32-billion of frozen paper into long term
Meanwhile, thousands of holders of frozen ABCP, including some in
financial distress, are still unable to access their investments.
Lawyers for the investor committee are expected to file a motion asking
an Ontario Superior Court judge to approve an amended restructuring plan
as early as Tuesday, paving the way for a court hearing by the end of
the week, which is widely expected to result in a positive ruling.
The revised plan is bolstered by $4.45-billion in additional margin
facility to support the leveraged credit default swaps that make up the
bulk of the assets underlying the frozen ABCP. The new cash is being
provided mostly by the federal government, Ontario and Alberta, which
has led some observers to call it a government bailout.
Observers say that if the court gives the green light to the workout as
expected, it could be completed before Jan. 16, clearing the way for
about 1,800 retail investors to get all their money back as part of a
deal announced by Canaccord Capital and Credential Securities.
In a note to clients on Dec. 24, Canaccord chief operating officer Mark
Maybank called the revised restructuring "an exceptionally important
milestone in what has been a long and challenging process, but one that
we have great confidence will be completed successfully."
Mr. Maybank said that under the current timetable retail noteholders
would have their money returned the week of Jan. 26.
While individuals will get their money back, the rest of the noteholders
are unlikely to be so lucky. Under the restructuring, the companies and
institutions that hold the vast majority of the frozen ABCP will get new
notes that they will most likely have to hold until they mature in 2016
since the market for investment products such as this is not expected to
The market for non-bank sponsored ABCP fell apart in August 2007 after
investors stopped buying and the banks that had agreed to provide
emergency liquidity declined to step up. That prompted a group of major
investors led by the Caisse de depot et placement du Quebec to halt the
market while they put together a rescue plan.
Critics complain that the restructuring is flawed because it relies on
the same group of liquidity providing banks that refused to step up in
August of 2007, triggering the market collapse.
The $4.45-billion of additional margin facility was demanded by players
such as Deutsche Bank, Merrill Lynch and Citigroup as a condition for
entering into the revised plan.