Cautious optimism is growing amongst participants and observers of the asset-backed commercial paper (ABCP) market saga after Friday’s refusal of the Supreme Court of Canada to hear a challenge by a group of investors to the restructuring plan.
Daryl Ching, vice-president of Canadian Hedge Watch and a structured finance consultant, says the outcome is particularly fortunate considering the deal was in serious jeopardy due to the current volatility in global markets.
According to him, financial institutions such as Deutsche Bank, Merrill Lynch, and UBS, which had agreed to provide a margin facility in order to allow the deal to happen, were all dealing with their own problems late last week, making their previous commitments to the restructuring process uncertain.
The planned US$700 billion bailout of the financial sector by the U.S. Treasury Department put those fears to rest, says Ching. “Without the bailout, I would have questioned if anybody was still at the table,” he says.
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He explains that while the restructuring plan is far from perfect, it’s the closest thing to fairness that all the parties can hope for, and commends the Pan-Canadian Investors Committee for their work. “To get everyone at the table and to comply with the restructuring plan, especially in today’s credit environment is incredible,” says Ching.
Brian Hunter, a Calgary-based oil and gas engineer who became the leader of a Facebook-based group of retail investors, agrees with Ching in that the plan could have been better for everyone involved, but is happy to see the process move forward.
However, not everyone is happy with the Court’s decision. “They say hard cases make bad law, and this is yet another example of that,” says Howard Shapray, a lawyer for Vancouver-based Ivanhoe Mines, which holds approximately $66 million of ABCP. “It appears in this instance, that expediency has trumped the proper application of legal principles.”
Shapray feels that pressure on the Court regarding capital markets and the economy had undue influence on the decision, and it might have found differently had the case been brought forth in a time of economic stability. “I think the issue came to the court at the wrong time.”
Federal Finance Minister Jim Flaherty weighed in, congratulating the investors committee for their efforts and lauding the decision. “The Court’s decision means that, after months of uncertainty, the restructuring can finally proceed as planned.”
“The most significant hurdle is behind us now,” says Purdy Crawford, chairman of the investors committee. He adds that the implementation of the plan will commence before the end of September, and says investors can expect to see their new notes and interest payments by late October.
For more about the ongoing ABCP story, click here to visit our special section, The Paper Chase.
To comment on this story, email jody.white@rci.rogers.com.