On Christmas Eve, the committee that’s been working to restructure the frozen asset backed commercial paper market announced that it finally had a new plan that should allow the market to thaw early in the new year, thanks in part to support from the government and other backers.

The Pan-Canadian Investors Committee for Third-Party Structured ABCP confirmed that an agreement has been reached with all key stakeholders, including the governments of Canada, Quebec, Ontario and Alberta regarding the restructuring of $32 billion of third-party asset-backed commercial paper.

The announcement follows the decision of the Ontario Superior Court to extend the stay period for the committee’s plan to restructure third party-ABCP until Jan. 16.

A key element of this fix was an agreement from Ottawa, Alberta, Quebec and Ontario to provide a backstop credit line totalling $3.5 billion. “The back-stop facility ranks senior to all other margin facilities and, in the event of margin calls, it would be last in and the first out,” the committee said in a release

The total margin facilities and equivalents now total $17.82 billion.

In connection with the establishment of the senior “back-stop” facility, the key parties to the restructuring have also agreed to certain further enhancements to the transaction including, among others, an extension of the previously announced moratorium from 14 to 18 months from the date of implementation and the elimination of the circumstances in which the moratorium could have been terminated earlier.

“We are obviously delighted with this support from the governments of Canada, Quebec, Ontario and Alberta as well as from the asset providers and the Canadian banks. We are equally pleased to have crossed a major hurdle in completing the restructuring plan,” said Purdy Crawford, chair of the committee.

Federal Finance Minister Jim Flaherty, welcomed the announcement of an agreement on the terms of the restructuring plan.

“I would like to commend all participants for their collective patience and hard work,” said Flaherty. “The agreement will provide a stable and effective result for investors and asset providers.”

Flaherty confirmed the federal goverment’s contribution of $1.3 billion, which is its share of a partnership with the governments of Quebec, Ontario and Alberta that supports the restructuring plan with a senior funding facility.

Meanwhile, DBRS Ltd. has lowered the rating it plans to give to new notes that will come out of the 16-month process to ABCP market freeze

The Toronto-based credit rating agency said Monday that it will be assigning a single-A rating to the notes, because “a number of challenges have arisen” since April, when it had said it expected to assign a double-A rating.

Credit spreads have widened significantly and some of the assets that were underlying the commercial paper have faced pressure.

DBRS was the only agency to rate the commercial paper before the market seized up as a result of the liquidity crisis in August, 2007, and much of the paper had received top ratings.

It continues to be the only agency to rate the new notes.

IE