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Canada’s C$32 Billion Debt Plan Is Approved by Judge

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.

Credit Rating

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 being drafted.

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

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