It's deja vu all over again in the asset-backed commercial paper saga.
One year ago to the day that the Pan-Canadian Investors Committee first claimed victory by announcing a "tentative" deal to restructure the frozen $32-billion market, the committee has confirmed it has a new "tentative" agreement that would lead to some investors being paid in full and others left holding long-term notes that will pay back their capital in eight years or so.
While negotiations were continuing into the evening, a spokesperson said "the committee for third-party structured ABCP confirms the tentative agreements reached with the governments of Canada, Quebec, Ontario and Alberta to provide funding to support a restructuring of $32-billion of third party asset-backed commercial paper. Details of the agreement, which are broadly similar to those reported in the media since the weekend, are currently being finalized. The committee will issue a news releases at the appropriate time with relevant final details."
Retail investor Brian Hunter, who holds $660,000 of the frozen paper and has been key to rallying retail investors, said: "We've been whacked so many times by this thing. Each time you thought you were getting somewhere. You get too skeptical. Until the cash is in my account, I'm certainly not chilling any champagne."
"It's very difficult to polish a turd ... maybe these guys have done the unthinkable. Maybe they actually polished a turd, who knows. If they do, I will be very excited to get my resources back," he added.
On Dec. 23 last year, after missing a number of self-imposed deadlines, the committee announced it had a deal in place to turn the short-term paper into long-term notes, which would see investors repaid their capital if they held them to term, about eight years.
Originally, Quebec pension giant Caisse de depot et placement du Quebec, which holds $13-billion of paper, and Desjardins Financial Group was also going to self-insure a tranche of those notes, and the rest was going to be backstopped by a $14-billion margin facility put up by a coalition of Canadian and foreign banks.
Since then, it has been a restructuring roller coaster, as credit spreads blew apart and retail investors flexed their muscles demanding to be paid, when the trusts holding the notes were turned into companies and put into creditor protection under the Companies Creditors Arrangement Act.
That lead to a side agreement where retail investors holding less than $1-million worth of paper would be paid out by their investment dealers, Canaccord Capital Corp. and Credential Securities.
The deal is expected to include a 14-month moratorium on collateral calls on loans related to the notes, a widening of the spread-loss triggers, which will reduce the likelihood of margin calls on the leveraged loans that the paper depends on, and an additional $3.5-billion in funding to backstop the notes from the government. That's in addition to the $39-billion of collateral and margin facility already in place to backstop the notes.
Originally, the committee was seeking $9.5-billion, but it's not clear whether or how much the parties involved in the market are being called upon to ante up more cash to backstop the notes.
Ontario Superior Court Justice Colin Campbell, who has been assigned to the case, must still approve any deal, which will likely happen in the first week of January, followed by a closing a week later.
Retail investors are expected to get paid 20 days later.
Court Extends Deadline for ABCP Restructuring (from the Canadian Press):
The Pan-Canadian Investors Committee for Third-Party Structured ABCP also confirmed that an agreement has been reached with all key stakeholders, including the governments of Canada, Quebec, Ontario and Alberta on the restructuring program.
The committee said it can now begin the process of completing the long-awaited restructuring and had posted related documents on the Internet.
The documents were made available by the court-appointed monitor, Ernst & Young Inc. on its website (www.ey.com/ca/commercialpaper).
A motion for court approval will be brought in early January, seeking approval of the closing process.
"Pursuant to the terms of an agreement reached among the governments, the dealer bank asset providers, the Canadian schedule 1 banks and the investors committee, the governments, together with certain participants in the restructuring will provide, in the aggregate, $4.45 billion of additional margin facilities to support the proposed restructuring plan," it said.
The committee said it was delighted with the support from the governments as well as from the asset providers and the banks.
"We are equally pleased to have crossed a major hurdle in completing the restructuring plan," said Purdy Crawford, chair of the committee.
Retail holders of the toxic investments, who represent only about one per cent of all involved ABCP, asked Monday that the governments make the success of any deal contingent on a separate deal for them.
In particular, the retail investors want the cap removed from a side deal promising to repay only those with $1 million or less invested in ABCP.
An estimated 99 per cent of the notes are held by institutional investors, such as pensions and businesses, but about $400 million is held by an estimated 1,800 retail accounts.