Friday, December 21, 2007

ABCP proposal could come within 10 days, sources say

(Financial Post) An investors committee overseeing the restructuring of $33-billion of seized-up asset-backed commercial paper plans to unveil a proposal within the next 10 days, in time to allow noteholders to comply with securities regulations around accounting disclosure.

"We're working around the clock to complete the agreement in principle at the earliest possible date and hopefully before the year," said Purdy Crawford, chairman of the so-called Pan Canadian Committee. Speaking on a conference call with investors earlier this week, Mr. Crawford repeatedly emphasized his intention to hammer out a proposal that could be put before noteholders before the end of the year, well ahead of the Jan. 31 deadline announced last weekend.

As well, sources close to the negotiations said there are rampant rumours amongst those involved that a deal could come as soon as today.

"We're doing everything that we possibly can to get to providing all the information we can for year-end purposes," he said. "We are quite aware of the accounting issues."

Meanwhile, it doesn't look as if the federal government has any interest in creating a bailout plan of its own.
"If the government became the day-to-day underwriter of market risk in commercial securities markets, that's a bottomless pit," Stephen Harper, the Prime Minister, said in an interview with Bloomberg News. A government rescue wouldn't be "healthy for the long-term growth of the Canadian economy."

Negotiations between Mr. Crawford's committee and various players in the market have been going on for most of the week, including last night.

Canada's market for third-party ABCP froze up in early August after issuers were unable to roll over maturing notes and financial institutions that had agreed to provide emergency liquidity failed to step in.

On Aug. 16 a group of financial institutions and investors launched a plan to restructure the stalled ABCP into longer-term notes.

Rumours about a possible deal came the same day as the Canadian Securities Administrators said it will increase its scrutiny regarding the way public companies disclose exposure to stalled asset-backed commercial paper.

In a statement, the CSA, an umbrella group for Canadian regulators, said it will look specifically at how companies write down the value.

"The reviews are focussing on the reasonableness of assessments of the fair value of ABCP," it said, adding that companies failing to follow the rules will be required to restate their financials.

Since the market for ABCP broke down in early August, scores of investors, from small mining companies to tour operators and pension funds, have disclosed heavy exposure.

Nearly all have written down the value of their holdings, but the writedowns range from almost nothing to more than 30%.

Since the notes have stopped trading, putting a realistic value on them is highly challenging.
Mr. Crawford said he is working toward a restructuring proposal that would include enough information on the 21 stalled trusts to put accurate values on their holdings.

Under the plan, the assets underlying the trusts would be separated into three groups, including traditional assets, subprime mortgates, and "synthetic" derivative investments.

Each would have a specific value placed on it by JP Morgan, which is acting as advisor to Mr. Crawford's committee.
However, Mr. Crawford declined to say whether the new restructured notes will trade at par value on the secondary market. "If you hold onto [the notes] to maturity, you'll probably get close to full recovery," he said on the conference call.

A senior official at a firm that is part of Mr. Crawford's committee said committee members are under the gun to complete a proposal sooner rather than later. "There is a major push and the heat is on," he said.

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