Investors hope end in sight for Canadian ABCP restructuring

Retail investors in distressed Canadian non-bank asset-backed commercial paper (ABCP) expect to find out in the next two weeks whether further delays are expected to a restructuring plan.

Approximately C$32 billion ($26.1 billion) of ABCP has been frozen since August 2007, when the non-bank conduits that issued the paper were no longer able to meet payment obligations to investors. Following the freeze, the Pan Canadian Investors Committee - formed by 17 financial and investment institutions that held approximately two-thirds of the paper - put forward a plan to restructure the short-term debt into three tranches of notes with maturities ranging from five to nine years.

The scheme, applicable under the Companies' Creditors Arrangement Act (CCAA), was devised by JP Morgan (Risk, May 2008, pages 28-30).

To succeed, the proposal needed the backing of investors holding at least two-thirds of the notional value of the paper and two-thirds of the total number of noteholders, with each vote counted equal.

On April 25, 96% of investors decided to back the plan, including a compromise deal that would involve the repurchase of the restructured notes at par for more than 2,500 retail investors holding less than C$1 million of affected paper.

Canaccord Capital, one of the brokerages that sold ABCP to retail clients, committed to repaying them in full between seven and 10 days after the completion of the restructuring. Another firm, Credential Securities, said it would pay its own retail clients within 20 days after the restructuring was in place.

Nevertheless, delays to the plan occurred when a group of disgruntled corporate investors (holding ABCP in excess of $1 million) who also wanted immediate repayment took their case to the courts.

A swift end to the saga was expected after the Supreme Court of Canada - the highest court in the country - declined to hear their case on September 19. Completion of the restructuring was set for the end of October, paving the way for retail investors to get their money back.

However, on October 20, the investors' committee announced a delay to the restructuring. "The completion of the transaction has taken longer than expected because of the large number of participants, the complexity of the documentation involved in the process and the recent volatility of the global financial markets," said the committee.

On October 29, the Ontario Court of Justice granted the committee an extension to complete the plan by November 28.

When contacted by Risk as to the possibility of further delays, Purdy Crawford, chairman of the investors' committee, said: "There has been no change since our press release of October 20 as to the timing for the completion of the restructuring."

Meanwhile, Mark Maybank, president and chief operating officer of Canaccord Capital, told Risk: "From our perspective, we remain confident in the current timeline".

According to the Investment Industry Regulatory Organisation of Canada (IIROC), which supervises investment dealers, seven dealers have already compensated 610 retail clients to the tune of C$319.7 million.

But 1,776 retail investors, who are collectively owed C$177.4 million - representing their full investment and interest owed - are still awaiting payment. And, understandably given the numerous delays to the process, many are concerned the investor's committee will seek a further extension to the restructuring.

Brian Hunter, a Calgary-based investor who bought C$658,000 of ABCP from Canaccord, is doubtful November will see a resolution. "Endless delays seem to be the strategy of those banks that don't want to crystallise losses on their books," he says. "It is possible those parties will seek a further delay around the 20th of November, which may push the process to Christmas at the earliest. If that happens, there is a 50/50 chance the restructuring might yet collapse."

See also: Canadian ABCP restructuring overcomes investor opposition
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