By Joe Schneider
Jan. 12 (Bloomberg) -- A plan to convert C$32 billion ($27 billion) of
insolvent Canadian commercial paper to longer- term notes was approved
by an Ontario judge, allowing more than 1,750 individuals to get refunds
as early as next week.
The plan, in the works for 17 months, involves swapping the asset-backed
commercial paper, or ABCP, for new notes, most of which mature within
eight years. The market for the paper collapsed in August 2007 on
concerns that part of the debt was backed by U.S. subprime mortgages.
Ontario Superior Court Judge Colin Campbell endorsed the plan today at a
hearing in Toronto.
“We restructured the whole market,” Purdy Crawford, the Toronto lawyer
who headed the committee that devised the plan, told reporters after
Campbell’s ruling. The committee expects to complete the plan by Jan. 16
and the new notes will be distributed to investors by the middle of next
week, he said.
Individuals holding C$186 million in the frozen debt have been waiting
for refunds since Canaccord Capital Inc. and Credential Securities Inc.,
both based in Vancouver, agreed in April to buy back the debt from
clients once the plan is done.
Layne Arthur, a 53-year-old resident of Sylvan Lake, Alberta, who owned
C$434,000 of the frozen debt, said he was “disgusted” by the length of
time it took to complete the restructuring and by the fees collected by
lawyers and advisers. The restructuring cost C$199 million in such fees
from Aug. 16, 2007, to Dec. 8, 2008, according to Ernst & Young Inc.,
the court-appointed accounting firm that monitored the process.
“Those guys are like pigs in the trough,” Arthur said in a telephone
interview. “Nobody knows what they do, but they’re all charging
mega-dollars. They have a self-serving interest to make the thing last
longer than is necessary.”
Before investors can be paid, thousands of documents must first be
signed by banks, brokerages and other parties, Crawford said. The
committee rented the 33rd floor of the downtown Toronto office building
housing law firm Goodmans LLP to host the signings, he said.
The Canadian government, along with provincial counterparts in Ontario,
Alberta and Quebec, are part of a group that pledged C$4.45 billion to
cover investors should banks demand payment on the commercial paper.
Banks agreed not to make any margin calls on the paper for 18 months.
Bank of Canada Governor Mark Carney was “very helpful” in securing an
agreement on the restructuring, Crawford said. “He talked to the leaders
of the foreign banks,” he said.
DBRS Ltd. assigned a provisional credit rating of A for about C$26
billion of the new debt, lower than the AA rating it proposed in April,
before the plan was submitted to the creditors for a vote. It’s also
lower than the AAA rating proponents sought a year ago when the plan was
Holders of the debt also include companies and pension funds such as the
Caisse de Depot et Placement du Quebec, Canada’s biggest money manager.
Campbell, in verbally endorsing the plan, urged Canadian regulators to
fix a system that allowed so many investors to end up holding insolvent
paper, when they expected the investments to be as safe as treasury
notes. He questioned how investors in the paper would “understand what
they were buying.”
“I urge regulators to sort out what investments should be available” to
individuals, he said.
The case is In the Matter of Metcalfe & Mansfield Alternative
Investments, C48969, Court of Appeal for Ontario (Toronto).
To contact the reporter on this story: Joe Schneider in Toronto at
Last Updated: January 12, 2009 12:50 EST