Market signals mixed
RTGAM
Ahead of a shortened pre-Christmas trading session, global signals are mixed for North American stock markets while the Canadian dollar has climbed above $1.01 (U.S.).
The loonie opened at $1.0108, up about one-third of a U.S. cent from Friday's close.
Stock markets will close early Monday, at 1 p.m. ET.
U.S. futures suggested a mixed open after strong gains Friday. Light sweet crude oil fell 25 cents to $93.06 in pre-market electronic trading on the New York Mercantile Exchange.
Stock markets in Japan are closed for Christmas. Britain's FTSE 100 rose 0.44 per cent and France's CAC-40 rose 0.06 per cent.
On Sunday, a group of investors working to solve the problems of asset-backed commercial paper said an agreement in principle to rescue about $33-billion (Canadian) worth of short-term debt in Canada has been reached.
The committee said the deal covers 20 of 22 member trusts with investments that were devastated by the credit crunch that followed the collapse of the U.S. subprime mortgage market.
On Friday, the Toronto stock market logged a solid triple-digit gain, ahead of the Christmas holiday week, as results from Research In Motion and higher gold prices overshadowed negative developments in the financial sector.
Toronto's S&P/TSX composite index moved up about 189 points to 13,596 in the last full-day trading session until Dec. 27.
On Wall Street, the Dow Jones industrial average rose about 205 points to 13,450. The Nasdaq composite index was up 51 points to 2,691.99 while the S&P 500 index rose 24 points to 1,484.46. Canadian Press
Copyright 2001 The Globe and Mail
ABCP pact sets stage for trading
Purdy Crawford's committee unveils agreement as impatient investors threaten lawsuits
An agreement reached yesterday to salvage the frozen $33-billion market for troubled commercial paper will give investors a chance to recoup much of their money after the debt begins trading this spring.
"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," stated Purdy Crawford, the lawyer who chairs the committee that worked for months on the restructuring agreement.
Some investors had been ready to launch lawsuits in a bid to recoup their money if a timely agreement hadn't been reached.
The plan unveiled yesterday divides the debt pool into three parts, in an effort to ensure that investors in each area can recoup the highest amount possible.
Print Edition - Section Front
There's a $3-billion portion of traditional, securitized assets; a $26-billion portion of mixed synthetic and traditional assets; and then the $3-billion portion that's tied to the U.S. subprime market.
Traditional assets are those such as mortgages, while synthetics are complex instruments - such as collateralized debt obligations - that are put together using pools of traditional assets that are sliced and diced and divided up in different ways.
Corporations, organizations, government bodies and pension plans across Canada have found themselves stuck holding this paper since August.
That's when the market's fear of U.S. subprime mortgages caused investors to bail out of a slew of complex investment products, including third-party asset-backed commercial paper (ABCP). The market has a small exposure to subprime.
In a bid to buy some time to hammer out a solution, a group of financial institutions that were key players in the market banded together in August and put together a standstill agreement that effectively froze the sector.
Mr. Crawford was eventually put in charge of the committee that's been trying to reach a restructuring proposal. It missed its self-imposed deadline earlier this month, and had set a new deadline of Jan. 31. But Mr. Crawford wanted a deal by Christmas.
"Everybody worked very hard," he said in an interview yesterday. "Thank goodness for modern technology, you can communicate so quickly," he added, as the committee was dealing with people from London to New York. Mr. Crawford held some meetings in his Toronto law office, but much of the work was done remotely.
"This time it was the chairman's turn to play a bit of Santa," said Huston Loke, of credit-rating agency DBRS Ltd.
He added that "the deal was being negotiated in some of the most volatile conditions in the credit markets globally."
Mr. Crawford said that in some cases - mostly the subprime - investors might have to take losses, but it's too early to say by how much. It will depend on the market at the time that the restructuring's complete, he said. For the majority of ABCP, the agreement should give investors a reasonable expectation of receiving the full par value of the investment over time, he said.
All of the ABCP will be exchanged for longer-dated notes that will be more closely matched with the maturity of the underlying assets. Maturity for many of the new notes is expected to be seven years on average. The committee expects most of the new notes to receive investment grade ratings of triple-A.
Before the agreement could be implemented there will have to be approval from the holders of two-thirds of the value of each of the ABCP trusts, as well as certain approvals from government, regulators and the courts. The committee hopes the restructuring will be finished in March.
Mr. Crawford said that each of the big Canadian banks other than Toronto-Dominion Bank has indicated some interest in providing some type of credit facilities to support the restructuring. Negotiations with the banks are ongoing. And TD, not involved in this market, has not definitely said no, Mr. Crawford said.
As part of the deal, two big investors in the paper, the Caisse de dépôt et placement du Québec and Groupe Desjardins - along with several other institutions - have agreed to commit an amount to fund margin calls. A margin facility of about $14-billion will be established, and certain players have agreed to "self-insurance" of almost $8-billion.
The Caisse issued a statement yesterday saying it was "very satisfied" with the agreement.
Aside from Skeena Capital Trust, which was already dealt with, yesterday's agreement does not cover Devonshire Trust, which is worth roughly $700-million. The committee is still working on alternatives for that trust.
"I cannot overstate the complexity of the restructuring, reflecting the value and complex nature of the underlying assets and the involvement of a number of parties with competing interests," Mr. Crawford said.
ABCP - A backgrounder
The freeze
Canada's $33-billion market for asset-backed commercial paper sold by non-bank dealers ground to a halt in August after Coventree Inc. and other trusts failed to renew maturing debt because investors were concerned about ties to high-risk U.S. mortgages. Banks refused to provide backup financing, freezing the market and putting funds at risk of collapsing, even though just 9 per cent of the assets were linked to subprime loans.
The jitters
Stock markets went on a roller-coaster ride in the summer and early fall as nervous investors began selling stocks to free up cash made scarce as banks ceased lending. And worries about who was holding bad U.S. home mortgages tainted even sound investments.
The Montreal meeting
A group of foreign banks, Canadian lenders and pension funds led by Caisse de dépôt et placement du Québec negotiated the so-called Montreal Proposal on Aug. 16 and agreed to convert the short-term debt into longer-term notes with higher interest rates.
The new deal
Based on the advice of financial adviser JP Morgan Chase & Co., most of the restructured notes will receive a triple-A rating, according to the statement. The group didn't say how much investors will receive on the dollar, according to spokesman Mark Boutet.
Bloomberg News, staff
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