Friday, December 28, 2007

JPMorgan May Fund Any Shortfall in CP Market Restructuring

(Bloomberg) -- JPMorgan Chase & Co. will cover any shortfall if banks fail to contribute to a $14 billion plan for restructuring C$33 billion ($33.7 billion) of Canadian asset- backed commercial paper, a group representing investors said.

JPMorgan would find lenders or finance any shortage in collateral backing margin calls on new trusts that replace asset-backed commercial paper, Mark Boutet, a spokesman for the committee overseeing the restructuring, said today.

Banks, lenders and funds agreed to convert the short-term debt into longer-term notes with higher interest rates after Canada's market for asset-backed commercial paper sold by non- bank dealers ground to a halt in August. Coventree Inc. and other trusts failed to renew maturing debt then because investors were concerned over ties to U.S. subprime mortgages.

``JPMorgan will find lenders that will sign on the margin facility in the event of a margin shortfall,'' Boutet said. ``The idea is to make sure that we have alternative plans to ensure we have the margin facility required to effect a restructuring.''

It's unlikely that JPMorgan will have to cover any shortfall, Boutet said.

Five of the six biggest Canadian banks have ``indicated interest'' in providing funding, Purdy Crawford, a Toronto lawyer representing investors, said earlier this week.

A spokeswoman for JPMorgan, Tasha Pelio, declined to comment.

Subprime Loan Ties

While only 9 percent of the short-term debt was linked to subprime loans, banks refused to provide backup financing in August, freezing the market and putting the funds at risk of collapsing.

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 securities into longer-term notes.

The group reached an agreement, which covers 20 of the 22 non-bank trusts, on Dec. 23 after twice missing deadlines to restructure the debt.

Most holders of the commercial paper will get all their money back eventually, Crawford said. The investors' group expects the restructuring to be completed by March.

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.

No comments: