The Canadian dollar traded at a one-month high above $1.01 US on Monday following a deal to restructure billions of dollars in short-term debt.
The loonie closed at $1.0152 US — up more than three-quarters of a cent from Friday's close.
| What is ABCP? |
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ABCP — asset-backed commercial paper — is short-term corporate debt that is made up of a bundle of loans like credit card receivables and car loans. This debt is then resold to other investors, taking the original loans off the books of the company that first issued them. That can lead to lower lending standards because the originator of the loans doesn't have to worry about collecting. ABCP tends to yield more than Treasury bills, making it a popular place for money market funds and pension funds to park money. In Canada, about two-thirds of the $120-billion ABCP market is sponsored by the big banks. The rest is known as third-party, or non-bank ABCP. In 2007, holders of some non-bank Canadian ABCP ran into trouble refinancing the debt when the credit crunch made investors shy away from any investment perceived to be risky. |
A group of investors announced an agreement late Sunday to restructure about $33 billion worth of third-party asset-backed commercial paper (ABCP).
These debt products had been essentially frozen since the credit crunch first flared in August. Following the collapse of the American subprime lending market, holders of ABCP could not find buyers to take the notes off their hands.
The deal, which was approved by 20 of 22 non-bank trusts, calls for the commercial paper to be swapped for longer-term notes that will mature between five and eight years from now.
Purdy Crawford, a Bay Street lawyer and the investor group's chairman, said at a news conference Monday that he could not overstate the complexity of the restructuring deal, but that he was "delighted" by it.
The deal, which requires regulatory and investor approval, is expected to be completed in March. Trading is expected to begin over-the-counter at that time.
"Through the goodwill and compromise of all key stakeholders, investors are well positioned to see most of that value preserved today with the likelihood that almost all value will be returned by maturity," Crawford said. "In the meantime the restructured notes will earn a return supported by their underlying assets."
Five of the big Canadian banks, excluding Toronto-Dominion Bank, have indicated an interest in providing credit facilities to support the restructuring, Crawford said.
The federal government, which last week refused to bail out short-term debt investors, said it welcomed the development.
"Going forward, it will be important that detailed information is made available to all investors and that arrangements are finalized at the earliest opportunity," Finance Minister Jim Flaherty said in a statement.
Ian Nakamoto, research director at Toronto-based MacDougall, MacDougall & MacTier Inc., told Bloomberg News the most important thing was that the investor group struck a deal after extending the deadline to Jan. 31, 2008.
"The investor committee had missed two deadlines already, so people were thinking this saga might drag on for a while," he said.
Reducing risk
The Caisse de dépôt et placement du Québec, Canada's largest pension fund manager, is the biggest holder of ABCP, with about $13.2 billion.
The fund manger said Sunday it was "very satisfied" with the agreement in principle.
Other ABCP holders include National Bank of Canada, ATB Financial, an Alberta bank, and Transat A.T. Inc., an airline carrier.
Under the restructuring plan, a $14-billion margin funding facility has been arranged through a combination of investors, dealer bank asset providers and banks.
The new structures are expected to reduce the risk of the notes triggering margin calls — calls from creditors demanding their investments be repaid.
The investor group, also known as the Montreal Accord, had said last week it expected to make a deal as quickly as possible to avoid potential lawsuits against issuers of commercial paper impatient with the process.
In October, Montreal-based Aastra Technologies Ltd. became the first company to launch a legal action over ABCP, filing against adviser HSBC Securities for exposing it to the now-tainted investment vehicle.
with files from the Canadian PressRelated
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