Sunday, December 23, 2007

Canadian Commercial Paper Investors Reach Agreement

(Bloomberg) -- Investors holding about C$33 billion ($33.3 billion) of short-term debt in Canada agreed to swap it for longer-term notes, ending a four-month freeze in trading of the securities.

``I am confident that this plan will provide most holders of outstanding commercial paper with the opportunity to receive the full repayment of principal by holding restructured notes to maturity,'' said Toronto lawyer Purdy Crawford, who heads an investors' group charged with the restructuring, in an e-mailed statement today.

Canada's market for asset-backed commercial paper sold by non-bank dealers ground to a halt in August after Coventree Inc. and other trusts failed to renew maturing debt because investors were concerned about ties to U.S. subprime mortgages. Banks refused to provide backup financing, freezing the market and putting funds at risk of collapsing, even though just 9 percent of the assets were linked to subprime loans.

A group of foreign banks, Canadian lenders and pension funds led by Caisse de Depot et Placement du Quebec negotiated the so-called Montreal Proposal standstill on Aug. 16 and agreed to convert the short-term debt into longer-term notes with higher interest rates.

Today's agreement, which covers 20 of the 22 non-bank trusts, has been approved ``in principle'' by the investor group as well as the trust sponsors. Some lenders, including ``several of the large Canadian banks,'' have said they may provide credit facilities, according to the statement.


Toronto-Dominion Bank, Canada's second-biggest lender, is ``not a participant in the agreement,'' bank spokesman Simon Townsend said. The Toronto-based bank had originally resisted supporting the restructuring agreement because it didn't underwrite the debt in the first place. The C$80 billion market for commercial paper sold by lenders such as Royal Bank of Canada hasn't been interrupted by the freeze in non-bank paper.

Townsend said that Toronto-Dominion ``will continue to participate in the ongoing discussions.''

Crawford said that based on the advice of financial adviser JPMorgan Chase & Co., most of the restructured notes will receive a AAA rating, according to the statement.

The group didn't say how much investors will receive on the dollar, according to spokesman Mark Boutet.

The commercial paper will be restructured differently depending on the type of asset that backs it, the statement said.

Missed Deadlines

The investors' group twice missed deadlines to restructure the securities. On Dec. 15, the committee said it would extend a trading standstill agreement to Jan. 31, and would finish the restructuring by March 14.

The Caisse, Canada's biggest pension-fund manager, is the largest holder of non-bank issued commercial paper, with about C$13.2 billion. Other large holders include National Bank of Canada, the country's sixth-biggest bank, ATB Financial, an Alberta bank, and Transat A.T. Inc., a charter carrier.

The Caisse said in a separate statement today it's ``very satisfied'' with the agreement.

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