TORONTO, Dec. 23 /CNW Telbec/ - The Pan-Canadian Investors Committee for Third-Party Structured Asset Backed Commercial Paper today announced that an agreement in principle has been reached regarding a comprehensive restructuring of the ABCP issued by 20 of the trusts covered by the Montreal Accord.
"I am pleased that we were able to build on the momentum achieved leading up to our December 14 announcement, and that the parties came to a consensus on a plan which I believe will allow noteholders to increase long-term value, and significantly decrease risk, of the outstanding ABCP, all well ahead of the new January 31, 2008 deadline," said Purdy Crawford, Chairman of the Investors Committee. "I am confident that this plan will provide most holders of outstanding commercial paper with the opportunity to receive the full repayment of principal by holding restructured notes to maturity. Importantly, based on the advice of JPMorgan, the Committee's financial advisor, most of these notes are expected to be AAA rated. Since the beginning of the Committee's process, we have had as our objective the creation and preservation of maximum value for all investors."
The Investors Committee has approved the agreement in principle. The restructuring has also been approved in principle by certain of the dealer bank asset providers as well as by the sponsors of each of the trusts. Certain other lenders, including several of the large Canadian banks, have indicated an interest in providing certain credit facilities to support the restructuring,
As of August 16, 2007, the date of the Montreal Accord, the 22 trusts covered by the Accord had approximately $35 billion (face amount) of outstanding ABCP. The restructuring plan addresses 20 of these conduits. Skeena Capital Trust successfully completed its restructuring on December 20, 2007. With respect to Devonshire Trust, the only other conduit covered by the Accord, the Investors Committee is continuing to consider separate restructuring alternatives and remains in discussions with the sole dealer bank asset provider to that conduit.
"After a thorough analysis of a broad range of alternatives, key stakeholders have agreed to support a comprehensive restructuring proposal that addresses the fundamental issues which have affected the ABCP," said Purdy Crawford. "The restructuring reflects compromise and contribution by the dealer bank asset providers and investors, coupled with the support of margin lenders in the event that additional collateral is required to support the structure in the future. In particular, certain of the major investors represented on our Committee have shown leadership and commitment, facilitating our restructuring."
Mr. Crawford added, "This proposal respects the principles we established for the restructuring: fairness and equity for all investors, value preservation and market transparency of the underlying assets to promote liquidity and market confidence in new notes to be issued as part of the restructuring."
Mr. Crawford said that while there may be some diminution from the original ABCP par value in some cases, for the vast majority of the ABCP, the restructuring gives investors a reasonable expectation of receiving the full par value over time and substantially reduces the risk that external events affecting credit markets in general will have an adverse impact on the restructured notes. Mr. Crawford noted, "I cannot overstate the complexity of this restructuring, reflecting the value and complex nature of the underlying assets and the involvement of a number of parties with competing interests. The result achieved demonstrates the good faith compromise of all these parties and a balancing of interests. I thank all of the key stakeholders for their contributions to date. Most importantly, I thank all ABCP investors for their patience in allowing us to get to this solution. We will do our utmost to answer investors' questions concerning the restructuring over the coming weeks and to bring the restructuring to a final implementation in early 2008."
Description of the Restructuring
The restructuring will (i) extend the maturity of the ABCP to provide for a maturity similar to that of the underlying assets; (ii) pool certain series of ABCP which are supported in whole or in part by underlying synthetic assets; (iii) mitigate the margin call obligations of the existing conduits with margin call risk and create a structure to address margin calls if they occur; and (iv) support the liquidity needs of those ABCP holders requiring it.
<< Key elements of the restructuring include: - A comprehensive and contemporaneous restructuring with distinct solutions for (i) ABCP which is supported solely by traditional securitized assets (approx. $3 billion); (ii) ABCP which is supported by synthetic assets, or a combination of synthetic and traditional securitized assets (approx. $26 billion); and (iii) ABCP supported primarily by U.S. sub-prime assets (approx $3 billion). - The restructuring of substantially all triggers to become more remote and transparent spread loss triggers. - Margin call facilities will provide an aggregate of approximately $14 billion to further enhance the stability of the assets and to support assets which may have the need for additional collateral in the future. - Liquidity arrangements for noteholders who require liquidity following the completion of the restructuring. - Investment grade ratings for most of the restructured notes, expected by the Investors Committee and its advisors to be AAA. JPMorgan has advised the Investors Committee that it believes that this comprehensive restructuring of assets and liabilities increases the long term value of the securities and significantly reduces the risk of realized losses due to the inherent risk of the leveraged synthetic assets. This press release provides an overview of the restructuring plan, and will be supplemented with further disclosure in the coming weeks. As an overview, this description is a summary only and investors are encouraged to review carefully the more comprehensive disclosure that will follow to address their specific holdings of ABCP. Distinguishing Among the Existing ABCP -------------------------------------- The ABCP subject to the Montreal Accord will be distinguished based upon the specific type of assets which support the ABCP, as described below. Traditional Securitized Trusts (approximately $3 billion) The trusts (or where applicable, series of a trust) with ABCP supported solely by traditional securitized (non-synthetic) assets such as securitized pools of various loan types (for example, credit card receivables and auto loans) will be restructured on a series-by-series basis, with each trust or series maintaining its separate assets. Noteholders will receive floating rate notes ("TA Tracking Notes") with maturities based upon the maturity of the underlying assets, but the TA Tracking Notes will amortize and be repaid in part, from time to time, as assets mature or value can be realized through asset sales. Each series of TA Tracking Notes will have an interest rate based upon amounts available from their respective traditional securitized assets. The trusts (or series of ABCP) included in this category are listed in Appendix A. The Investors Committee believes these trusts have assets of the highest credit quality, and DBRS has previously assigned high investment grade ratings on the credit risk of the underlying assets associated with these trusts - in the case of R-1(high) rated trusts, ratings of AAA, and in the case of R-1(middle) trusts, ratings of AA. The Investors Committee expects, based on advice of its financial advisor, that each of the series of TA Tracking Notes will receive similar ratings. Synthetic Trusts (approximately $26 billion) Those trusts (or where applicable, series of a trust) with ABCP supported solely by "leveraged super senior" (or "LSS") tranches of collateralized debt obligations, synthetic assets (such as synthetic collateralized debt obligations) or a combination of LSS, synthetic and traditional securitized assets ("Pooled Trusts") will pool their assets. In certain cases, the assets underlying specified series' of ABCP may be excluded prior to the pooling of the assets. Floating rate notes ("Pooled Notes") will be issued to noteholders in exchange for their existing ABCP, with maturities of the Pooled Notes based upon the maturities of the underlying pooled assets. Maturity of the Pooled Notes is expected to be an average of 7 years, subject to the retention of amortization amounts under the collateral arrangements. The trusts (or series of ABCP) included in this category are listed in Appendix A. The Investors Committee believes these trusts have assets of the highest credit quality, and DBRS has previously assigned a AAA rating on the credit risk of the underlying assets associated with the Pooled Trusts. In order to enhance liquidity of the Pooled Notes, most investors will receive a senior and a subordinated Pooled Note in exchange for their existing ABCP of the Pooled Trusts. Based upon advice from its financial advisor, JPMorgan, the Investors Committee expects that the senior Pooled Note will receive AAA ratings, provided however, that the Investors Committee and its financial advisor, JPMorgan, recognize that such ratings will depend upon a number of factors, including adverse changes in credit and market conditions and developing or differing ratings methodologies between now and the issuance of such senior notes. The subordinated Pooled Note is not expected to be rated. Those investors participating in "MAP 1" (which is described below) will receive a single Pooled Note in exchange for their existing ABCP of the Pooled Trusts or, at their option, separate senior and subordinated Pooled Notes. The economic value of the combined senior and subordinated Pooled Notes will be equal to the economic value of a single Pooled Note. Those investors participating in "MAP 2" (which is also described below) will receive separate senior and subordinated Pooled Notes. The Pooled Note structure is discussed further below under the heading "Relative Contribution Analysis". In addition, in order to enhance the stability of the assets and to fund future margin calls on the assets supporting the Pooled Notes, a margin facility of approximately $14 billion (the "Margin Facility") will be established. Further details on the Margin Facility are summarized below. To facilitate the funding of the Margin Facility, the restructuring plan provides for the creation of two "Master Asset Partnerships" or "MAPs" which will issue the Pooled Notes. MAP 1 will include La Caisse de Dépôt et Placement du Québec, Desjardins Financial Group and several other institutions represented on the Investors Committee, who have each committed an amount to fund margin calls for MAP 1, in each case subject to these investors receiving necessary approvals. Other investors who advise the Investors Committee of their willingness to commit a proportionate amount to fund margin calls associated with the pooled assets supporting their Pooled Notes may elect to participate in MAP 1 subject to their providing evidence satisfactory to the dealer bank asset providers and other participants in the MAP 1 margin facility of adequate credit capacity to fulfill these obligations or availability of suitable collateral to support the commitment. MAP 2 will include all other holders of Pooled Notes. The commitment of "self-insurance" of almost $8 billion by selected investors who will participate in MAP 1 is a substantial contribution to the restructuring, allowing the full benefit of the Margin Facility provided by other lenders to support the obligations of MAP 2. Based upon interest expressed to date, MAP 1 is expected to include approximately $15 billion of underlying assets and MAP 2 is expected to include approximately $11 billion of underlying assets. Once established, each of MAP 1 and MAP 2 will be separate from a legal, risk, economic and governance perspective. U.S. Sub-prime Related Trusts (approximately $3 billion) A limited number of trusts hold assets which the Investors Committee believes to be ineligible for participation in the Pooled Trusts because of uncertainties as to their credit quality and heightened volatility, principally as a result of exposure to U.S. sub-prime or home equity loan mortgages. These assets are referred to as "ineligible assets" and may be held directly or in the form of collateral by certain of the conduits. The trusts (and series, where applicable) supported by ineligible assets are listed and identified in Appendix A to this release. Certain of the series listed in Appendix A have a mixture of ineligible assets and assets which are traditional or synthetic. Each of these series which are also supported by eligible synthetic assets will also participate in the Pooled Trusts to the extent of their eligible assets. The ineligible assets will be restructured on a series-by-series basis, with each series maintaining its separate exposure to its own ineligible assets. Noteholders will receive floating rate notes ("IA Tracking Notes") with maturities based upon the maturity of the underlying assets, but the notes will amortize and be repaid in part, from time to time, as assets mature or value can be realized through asset sales. Each series of IA Tracking Notes will have an interest rate based upon amounts available from its respective ineligible assets. Certain IA Tracking Notes are expected to have a rating commensurate with the creditworthiness of each of the underlying assets supporting each series of such notes. Additional Background to the Restructuring Plan ----------------------------------------------- Pooled Trusts The Pooled Trusts will benefit from other important elements of the restructuring plan: Spread Loss Triggers: The existing conduits that have LSS are generally exposed to "mark to market" triggers which, if met, would require these conduits to provide dealer bank asset providers additional collateral. In the more transparent spread loss methodology, a matrix is built using two directly observable inputs; credit spreads as determined by a tradable index and the actual loss experience of the credits in the relevant index. The restructuring of the LSS is based upon the movement to these new triggers to levels which make the likelihood of the delivery of additional collateral more remote and establishing a transparent, objective means to assess the need for additional collateral. Relative Contribution Analysis: In preparation for the completion of the restructuring, JPMorgan will be undertaking a relative contribution analysis in respect of the Pooled Trusts. This relative contribution analysis reflects that the assets held by the Pooled Trusts would represent differing levels of relative contribution based upon the precise nature and mix of assets in each of the existing trusts. In creating the Pooled Trusts, investors will receive Pooled Notes that reflect the relative contribution of the existing pooled assets associated with the ABCP held by them in the trusts that are participating in the Pooled Notes. For those investors who receive senior and subordinated Pooled Notes, this relative contribution is reflected in the mix of senior and subordinated notes they receive. Pooled Notes: The Pooled Notes will provide for a combination of interest payable in cash and in kind. The portion of the Pooled Note with interest payable in cash will be determined based upon the JPMorgan Relative Contribution Analysis. For those investors in the Pooled Trusts who receive the senior and subordinated Pooled Notes, the senior note will have cash interest and the subordinated note will have interest payable in kind. Margin Facility: Agreements in principle have been reached for commitments on more than 90% of the approximately $14 billion of the margin facility and the Investors Committee has indications of interest for the remainder. The commitment of self-funding by those investors who will participate in MAP 1 is a substantial contribution to the restructuring, facilitating the implementation of third party margin funding facility to be provided to the investors in MAP 2. In addition, the Investors Committee acknowledges the significant contribution of certain of the dealer bank asset providers and other investors towards the establishment of the Margin Facility supporting MAP 2. Final participation in the Margin Facility is subject to all necessary approvals for each of the participants. In accordance with normal commercial terms, providers of credit commitments under the Margin Facility, including the self-funding investors, will be entitled to fees associated with their credit commitments. The final fees will be based upon market terms at the time of the completion of the restructuring. If the restructuring were being completed now, the fees would be approximately 160 bps of the principal amount of the overall margin commitments. Any advances under the Margin Facility will become obligations senior to the obligations of MAP 1 or MAP 2, and will be entitled to payment on both principal and interest ahead of the Pooled Notes issued by MAP 1 (in the case of advances in support of the MAP 1 underlying assets) or MAP 2 (in the case of advances in support of the MAP 2 underlying assets). Costs of the Restructuring -------------------------- The costs of completing the restructuring, including the costs of the Investors Committee's advisors, rating agencies and service providers and the costs of the indenture trustees and their advisors, will be fairly allocated among all of the conduits as part of the restructuring. These costs are not material in the context of the restructuring. Liquidity and Trading of Restructured Notes ------------------------------------------- A number of measures will be established to provide liquidity for the restructured notes following completion of the restructuring. The Investors Committee anticipates that the AAA rating expected to be accorded to most of the restructured notes, together with full transparency of the underlying assets supporting these notes, will facilitate trading. The Investors Committee is in discussions with market participants to explore other means to support the trading and liquidity of the restructured notes and will update investors early in 2008. Approval Process and Implementation ----------------------------------- Definitive legal documentation to implement the restructuring is currently being prepared. The Investors Committee expects that, upon completion of the restructuring, participating parties will receive comprehensive releases and all outstanding market disruption liquidity facilities will be cancelled. The implementation of the restructuring will be subject to a number of conditions, including execution of definitive legal documentation, satisfactory due diligence and receipt of internal approvals by dealer bank asset providers, receipt of the requisite approvals of holders of ABCP in each of the trusts (or, in certain cases, series of ABCP of a trust) holding not less than 2/3 of the aggregate value of ABCP of that trust (or series) as represented in person or by proxy at a meeting of holders of the trust (or series). A variety of consents and other approvals will be necessary or desirable in connection with the restructuring, including certain governmental, regulatory and court approvals. It is anticipated by the Committee that the restructuring will be completed in March 2008. Any trust (or series of the trust, as applicable) that does not obtain the requisite noteholder approval will not be eligible to participate in the restructuring. In order to allow holders of ABCP of each trust to make a fully informed decision about the restructuring, an information package (including a comprehensive information circular) with all necessary disclosure regarding the restructuring and its impact on the holders of the ABCP of the particular trust (or series) will be mailed to all holders of ABCP in advance of the meeting of their trust called to consider the restructuring. Conference call with Media -------------------------- Mr. Purdy Crawford, will host a press briefing for members of the media on Monday December 24, 2007 at 12:30 p.m. (EDT) to discuss the restructuring proposal and answer questions.) - Access via telephone: 416-340-2217/ 1-866-696-5910 (toll-free). The access code is 3247288#. - A recording of the telephone press briefing will be archived and accessible until Monday December 31, 2007 by dialling 1-416-695-5800 / 1-800-408-3053 (toll-free). The access code is 3247288#. Appendices Appendix A - List of trusts by series: Traditional Securitized, Synthetic Pooled and U.S. Sub-prime related Appendix B - Schematic representing the proposed restructuring is attached and available by clicking on the following link: ftp://ftp.national.ca/medias/ABCP/. Username: Crawford Password ABCP Appendix A Traditional (by Series) ----------------------- Apollo, Series E Apollo, Series H Comet, Series E* Comet, Series F Gemini, Series A Gemini, Series E Gemini, Series F Newshore Canadian Trust, Series A Newshore Canadian Trust, Series 01-1 Slate, Series A-1 Slate, Series E-1 Synthetic (by Series) --------------------- Apollo Trust, Series A Apsley Trust, Series A* Aria Trust, Series A* Aria Trust, Series E Aurora Trust, Series A Aurora Trust, Series E* Aurora Trust, Series F* Comet Trust, Series A Encore Trust, Series A Encore Trust, Series E MMAI-I Trust, Series A Opus Trust, Series A Opus Trust, Series E Planet Trust, Series A* Planet Trust, Series E* Planet Trust, Series F Planet Trust, Series L8 Rocket Trust, Series A* Rocket Trust, Series E Rocket Trust, Series F SAT, Series A SAT, Series E SAT Series L1 Selkirk Funding Trust, Series A Silverstone Trust, Series A SIT III, Series A SIT III, Series E Symphony Trust, Series A Symphony Trust, Series E Whitehall Trust, Series A Additional Information ---------------------- on Portions of those Percentage of -------------------- ------------- Series' Above with Series Assets ------------------ ------------- Ineligible Assets which are Ineligible ----------------- -------------------- Apsley Trust, Series A 37.5% Aria Trust, Series A 10.6% Aurora Trust, Series E 23.2% Aurora Trust, Series F 5.6% Comet Trust, Series E 12.9% Planet Trust, Series A 44.5% Planet Trust, Series E 21.3% Rocket Trust, Series A 13.2% Ironstone Trust, Series A(xx) 100.0% Ironstone Trust, Series B(xx) 100.0% In connection with the restructuring the allocation of series among the categories above is subject to change. * Note: Those series marked with an asterisk indicate series' supported, as to some or all of their respective underlying assets, by assets which are considered to be ineligible for participation in the pooled trusts. These series may appear in both the list of Ineligible Assets and one of the Traditional or Synthetic lists and the portion of the face amount of their assets which are constituted by ineligible assets is specified in the table. (xx) Note: As 100% of the assets underlying the Series A and Series B notes issued by the Ironstone Trust have been categorized as ineligible, these series have not been listed in either the Traditional or Synthetic lists. >>
For further information: NATIONAL Public Relations (Media): Toronto: David Weiner, (416) 848-1633; Montreal: Mark Boutet, (514) 843-2385, Cell: (514) 944-5393; Ernst & Young Inc.(Investors): Pierre Laporte, (514) 874-4383
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