Tuesday, February 05, 2008

Banks Back ABCP Rescue Plan

The Globe and Mail, Paul Waldie, 5 February 2008

Toronto-Dominion Bank has declined to join other major Canadian and foreign banks in a financial support agreement to aid the restructuring of a troubled portion of the asset-backed commercial paper market.

The committee overseeing the restructuring of the $33-billion of frozen non-bank-sponsored ABCP said yesterday four Canadian banks agreed in principle to contribute to a fund that will help stabilize the market.

A key part of the restructuring involves the creation of a $14-billion margin facility that would protect against the threat of liquidation by funding margin calls on assets that underlie new notes.

Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Bank of Nova Scotia will take part, National Bank of Canada having already been on board. But a TD spokesman reiterated his bank's position, saying in a statement that "we're supportive of a solution and willing to play a role, as long as that doesn't involve us taking on incremental risk."

On a conference call with reporters, committee chairman Purdy Crawford would not provide details about the amount each bank will contribute, but it is understood the Canadian banks will kick in about $2-billion in total.

TD does not want to take part because it did not sell the so-called third-party paper. Mr. Crawford would not say whether the committee is continuing negotiations with TD.

"That's a very co-operative bank and I have no other comment," he said.

The non-bank ABCP market has been frozen since August.

Mr. Crawford's committee consists of major investors in short-term paper and it has spent months working out a plan to replace the paper with longer-dated notes.

The committee also said it hopes to have information available for investors by the end of this month.

The information is expected to include the value of the assets underlying the existing ABCP as well as details about the replacement bonds.

Mr. Crawford said the committee is sticking by its deadline of March 31 to have investors vote on a restructuring. If new notes are approved, most investors can expect to receive full par value of their investment if they hold on to maturity, he added.

He also confirmed the committee has extended a standstill agreement, which effectively froze the market, until Feb. 22.
Reuters, Nicole Mordant, 4 February 2008

Four of Canada's five biggest banks have conditionally agreed to put up funding to repair a damaged segment of Canada's commercial paper market, the group handling the drawn-out and complicated task said on Monday.

The committee also said major market players have agreed to extend a trading and margin call halt until February 22 and that enough information on the fix-it plan will be available toward the end of this month for investors to make informed decisions on what to do with their holdings.

The committee, made up of the largest investors in the C$33 billion market for Canadian asset-backed commercial paper not issued by the country's big banks, said it still expects the restructuring to be finished by the end of March.

The so-called nonbank ABCP sector seized up in August last year when investors started to worry about the debt investments' exposure to troubled U.S. subprime mortgages.

A committee of the largest investors and players, including Canadian pension funds and foreign banks, was quickly formed and on December 23 announced an agreement in principle on a broad plan to convert the frozen notes into longer-term paper.

The involvement of Canada's banks, which the media has speculated about since December, was confirmed on Monday by the committee, which is led by veteran Toronto lawyer Purdy Crawford.

Bank of Montreal , Canadian Imperial Bank of Commerce , Royal Bank of Canada and Bank of Nova Scotia have agreed in principle, subject to certain unspecified conditions, to join National Bank of Canada and others as lenders in a C$14 billion funding facility in the event of margin calls on the paper or the threat of default.

Such a financial underpin is crucial in getting the troubled market back on its feet and the banks' involvement was welcomed by Canada's finance minister in a statement.

Toronto-Dominion Bank , Canada's second biggest bank, was noticeably absent from the list. TD has said it did not believe it should have to put up money to fix a problem it had no hand in.

"The support of the major Canadian banks is an important component of the plan, and we are pleased to confirm their participation, which further reflects the spirit of compromise and goodwill that has prevailed throughout this process," Crawford said in a statement, which was overdue by three days.

Crawford declined to say on a conference call how much the banks will put in collectively, or individually, or what conditions they want met, leaving some in the market discomfited. He also declined to comment on TD's position.

"Until I see a number I don't think there is an agreement," said Daryl Ching, founder of Clarity Financial Strategy, a company set up to advise investors on the ABCP debacle.

The four banks also declined to comment further. The Globe and Mail newspaper said in December the committee had asked each bank to pony up C$500 million.

Under the restructuring plan, most noteholders can expect to receive full principal repayment if they hold the new restructured notes to maturity, which is on average seven years, the committee said on Monday.

Such a long wait is a tough request for some smaller corporate investors that need the money for day-to-day operations, and originally invested in the paper because it would pay out every one to three months.

Ching questioned whether the committee would finish its work by the end of March as there was still a lot to be done and given its propensity to miss its self-imposed deadlines.

The group, which is being advised by JP Morgan, said there has been active discussions on the restructuring of Devonshire Trust, which was not part of the plan announced in December.

The committee also said that BlackRock Inc had been appointed administrator and asset manager of the restructured trusts. BlackRock is the largest publicly-traded asset manager in the United States.

Toronto-based Coventree Inc , the biggest issuer of nonbank ABCP and the firm at the center of the market storm, said on Friday it is likely to wind up its business after its bid to administer the assets failed. Its stock dropped 35 percent to close at 55 Canadian cents on Monday.