Canadian retail investors in non-bank asset-backed commercial paper should see credits in their investment accounts by the end of the month, closing the door on a troubling period in Canadian financial markets.
Hundreds of retail investors, each holding less than $1 million worth of the ABCP, breathed a collective sigh of relief after an Ontario court judge approved a controversial restructuring plan hammered out by financial services institutions and backed by the federal government and three provinces.
Clients who fall into this category — holding a total of about $400 million in ABCP — will see 100% of their principal returned, plus accumulated interest and costs, says Arthur Jacques, a securities lawyer with Shibley Righton LLP in Toronto.
Many are clients of Vancouver-based brokerage Canaccord Capital Inc. or of Credential Financial Inc. , the Vancouver-based securities dealer that represents a consortium of Canadian credit unions.
“We’re pleased,” Jacques says, noting that investors have suffered trauma, distress, angst and delay while waiting for the liquidation of notes once sold to them as AAA-rated — a rating projecting the ABCP to be as safe as government treasury bills.
As for those investors with assets greater than $1 million, mostly institutional investors, they will receive notes with maturity dates eight or nine years from now, Jacques says, noting that these investors “are doing that with resignation.”
A secondary market will probably develop for these notes, but Jacques suggests that investors would have to be desperate to sell because the notes will probably trade at a deep discount.
A total of about $32 billion in third-party ABCP has been frozen for more than a year pending this compensation agreement.
Brian Hunter, a Calgary oil and gas engineer who founded the Facebook group that led to forming a coalition of 1,800 retail investors, says he is pleased with the prospect of finally seeing the $660,000 he spent 30 years saving.
Hunter commends the law firm Goodmans LLP and the Pan-Canadian Investors Committee, headed by Purdy Crawford, a Toronto lawyer with Osler Hoskin & Harcourt LLP, for a difficult job well done. The committee, which consisted of representatives of Canada’s major financial services firms, has worked since April to arrive at a solution. In negotiating the deal, the committee had to address the concerns of the various parties as well as cope with the global credit squeeze, market volatility and the ensuing recession.
But not everyone deems the restructuring to be fair. Class-action lawyer Henry Juroviesky of Juroviesky and Ricci LLP and investor advocate Diane Urquhart of Toronto both have argued that the criteria for compensation should include retail investors with more than $1 million in assets — or those whose assets fell into excluded categories, such as family trusts and personal holding companies. Both have vowed to continue to push for compensation for those affected.
“We are strenuously pushing all parties to achieve 100% payout for the greater than $1-million noteholders,” says Juroviesky, who held a “Webinar” with Urquhart on Jan. 15 to update noteholders.
He urged all noteholders to check their accounts carefully to make sure they are getting precisely what they are owed, in terms of principal, interest and costs for the notes that they hold.
Two series of notes have been restructured in a complex way so that the face value on the mature notes may differ from the original face value. Holders of these notes, he warns, must be “self-policing” when it comes to their accounts.
The judge who approved what Jacques calls “the largest restructuring in Canadian financial history,” says something had to give to expedite the process while keeping it as fair as possible.
“This court continues to be satisfied that the compromise of the claims of a small percentage of investors is justified in order to preserve an amended plan that has the prospect of a greater and earlier return to all the holders of ABCP,” Justice Colin Campbell of the Superior Court of Ontario wrote in his reasons for giving a nod to the deal.
Recipients of the eight- or nine-year notes include Quebec’s largest pension fund manager, the Caisse de dépôt et placement du Québec, which owns non-bank ABCP that was originally valued at $12.6 billion.
Other financial services companies receiving notes are Montreal-based National Bank of Canada and Quebec City-based Desjardins Group, which together have ABCP originally valued at about $4 billion. In addition, Edmonton-based ATB Financial owns ABCP originally worth more than $1 billion; the Ontario government, about $645 million.
@page_break@The collapse of third-party ABCP has resulted in soul-searching for the causes driving the financial fiasco, including the lack of transparency of the structured products and the appropriateness of non-bank ABCP for risk-averse clients.
Also under discussion is the role of bond-rating agencies, which were paid by the companies that issued the notes. The rating agencies subsequently gave the ACBP solid ratings.
The Investment Industry Regulatory Organization of Canada has conducted a compliance review of non-bank ABCP programs and the activities of dealer members who created or sold the notes to clients. IIROC’s report sparked the Canadian Securities Ad-minist-rators to draft an Oct. 6 consultation paper entitled Securities Regulatory Proposals Stemming from the 2007-08 Credit Market Turmoil and its Effect on the ABCP Market in Canada. The comment period for the paper was extended to Feb. 16, 2009, from Dec. 20, 2008.
The paper proposes several changes, including establishing a regulatory regime for credit-rating agencies, reducing the reliance on credit-rating agencies in securities law, reviewing the definition of “accredited investor” and the 10% concentration limit for mutual funds, as well as putting more restrictions on the kinds of products eligible for investment by money market funds. IE
Ontario court ruling draws ABCP fiasco to a close
But critics say that retail investors with more than $1 million in assets are not getting a fair shake
- By: Laura Bobak
- January 23, 2009 January 23, 2009
- 15:44