Sunday, December 14, 2008

Canadian ABCP committee proposes enhancements to restructuring plan

(Investment Executive) An “agreement in principle” has been reached among key participants in the restructuring plan for the asset-backed commercial paper (ABCP) market, the committee developing the plan announced Thursday evening.

The Pan-Canadian Investors Committee for Third-Party Structured ABCP, which is led by lawyer Purdy Crawford, is proposing three key enhancements meant to provide “significant improvements” to the restructuring plan.

The first change would create an initial moratorium period during which no collateral calls could be made, subject to an early termination right in certain circumstances.

The second element involves a widening of certain “spread-loss” triggers following the moratorium period, reducing the potential for collateral calls.

Third, an additional $9.5-billion margin facilities would form “back-stop” arrangements that would rank senior to all other previously agreed margin funding facilities and collateral in the aggregate amount of $39 billion. The funds, which would earn a negotiated commitment fee, would be drawn upon only if all existing available collateral has been fully utilized.

The committee is currently canvassing external sources for these additional facilities.

The committee also outlined a new timeline for the restructuring process. If the agreement is formally approved by the key participants, the committee would begin the completion of the restructuring process by Dec. 19, 2008, and would finish in January. The committee will seek a further extension of the court-imposed stay under the Companies' Creditors Arrangement Act to Jan. 16, from the current expiry date of Dec. 19.

“The Canadian and international credit markets have experienced extraordinary volatility in recent months. We believed in March of this year, that we had constructed a solution that could withstand what lay ahead. The market conditions have worsened beyond all of our expectations,” said Purdy Crawford, chairman of the committee, in a release.

“The transaction enhancements we have proposed will allow participants to meet their ratings objectives, will allow a meaningful window of time for our markets to normalize and will also provide substantial additional flexibility if they worsen further. The Investors Committee continues to be supportive of the ABCP restructuring and welcomes these proposed enhancements.”

In a note to clients, Canaccord Capital Corp. president Mark Maybank applauded the enhancements to the plan.

“Canaccord is confident that these improvements will provide the stability necessary to complete a successful restructuring,” he said.

No comments: