By Lynne Olver
TORONTO (Reuters) - A relief plan to assist individual
owners of frozen Canadian asset-backed commercial paper is in
the works, but it is moving more slowly than participants
hoped, Canaccord Capital Inc
"A lot of people are working very diligently ... we continue to work with others to put together that plan," Maybank said in an interview. "It's not finished, it's certainly taking longer than we or anyone else would like, but we think we're getting closer."
Some retail investors are upset with a proposal to restructure C$32 billion ($31.4 billion) of asset-backed notes that were issued by various non-bank-sponsored trusts. This segment of the commercial paper market collapsed last summer.
Retail noteholders, most of them Canaccord clients, outnumber institutional investors with big holdings, so they could kill the seven-month-long ABCP restructuring effort next month if a majority votes against the proposal.
The relief plan could offer extra liquidity to small ABCP investors who receive new, restructured notes.
But it is "doubtful" the plan will be finalized before public information meetings on the main restructuring proposal begin next week, Maybank said.
He declined to name the other parties in the talks. The Globe and Mail newspaper said "a group of Canadian financial institutions" was involved.
Small investors face tough choices as they ponder the restructuring proposal: receive new notes and wait years to recover their funds; sell the new notes at potentially steep discounts in a secondary market; or vote against it and try to recover their money through litigation.
Some 1,400 of an estimated 1,800 retail noteholders are clients of Canaccord. The investment dealer has said it cannot afford to buy out their ABCP positions, totaling about C$270 million.
Another 335 investors, who are with Credential Securities Inc., an investment dealer for various Canadian credit unions, collectively own C$48 million of the seized-up paper.
One of them is Toronto commercial lawyer Brian Iler, who turned over C$229,000 to his credit union last year and says he asked it to be invested someplace safe.
Iler is not impressed with the restructuring proposal, and does not want the "extremely high-risk notes" that would result. He also objects to the legal releases in the proposal, which will shield banks and other participants from any lawsuits for losses or damages.
"I need recourse to the people who sold me this stuff," he said. "I can't see that there's much downside to voting no."
Credential said this week that it is exploring avenues to ensure that its investors "receive the maximum possible value from their investments."
One option under discussion calls for retail investors' holdings to be bought for a set percentage of their initial investments.
"It depends a bit on the type and nature of the client, different clients have different needs, but we would be able to guarantee a certain percentage," Canaccord's Maybank said.
"That would certainly be one of our preferred ways to go forward."
It's unclear who would be considered a small investor, however.
The cost of settling with individual ABCP investors is low in the grand scheme of the restructuring, so large stakeholders will probably step up, a bank analyst said on Thursday.
"We believe that small investors have less than C$500 million of the total balance but the majority of the votes," BMO Capital Markets analyst Ian de Verteuil said in a research note.
Assuming that a successful ABCP restructuring allowed 85 percent recovery on the paper, the cost of settling with small investors would only be C$75 million, de Verteuil said.
"We have no idea who will bear the costs of settling this situation but are confident that some of the larger stakeholders will," the analyst wrote.
($1=$1.02 Canadian)
(Reporting by Lynne Olver; editing by Rob Wilson)
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