Thursday, December 25, 2008

Xmas present for ABCP holders courtesy of federal and provincial govts.

It seems that the old free market let losers fail philosophy is now being abandoned by govts. in power no matter what their political stripes. Of course this is all just temporary. The enduring legacy for all these govt. stimuli, bailouts, etc. will be debts for future generations and in time no doubt monetary inflation rather than deflation. The next steps will be to further erode social programs and also attack labor unions. This is already being done quite successfully in the auto bailout.

Governments to back ABCP deal with $4.45B

Dec 25, 2008 08:29 AM
The federal government, in conjunction with three provinces and other parties, will provide a total of $4.45 billion in financial backstops to rescue a restructuring plan for a massive slice of this country's commercial paper market.
An investor committee responsible for restructuring $32 billion worth of non-bank asset-backed commercial paper revealed those key details last night, nearly one week after Ottawa struck a deal with Ontario, Quebec and Alberta to prop up the problem-plagued retooling.
The exact amount of the "senior funding facility" was not disclosed at that time. The investor committee initially told Ottawa that it needed $9.5 billion in further guarantees to salvage the restructuring after foreign banks threatened to walk away from the deal.
The committee now says that Ottawa and the provinces, together with certain participants in the restructuring, will provide $4.45 billion of additional margin facilities to support its restructuring plan. That means margin facilities for the plan now total $17.82 billion.
"We are obviously delighted with this support from the governments of Canada, Quebec, Ontario and Alberta as well as from the asset providers and the Canadian banks. We are equally pleased to have crossed a major hurdle in completing the restructuring plan," said Purdy Crawford, chair of the investors committee, in a release.
"... As a result of these latest developments, we can begin the process of completing this restructuring with the posting of documents today."
Next steps will occur in early January when the committee seeks court approval of the closing process, which could finally mark the end of its 16-month restructuring ordeal.
Canadian non-bank ABCP, a type of short-term commercial debt, has been in crisis since seizing up in August 2007. The market experienced a dearth of buyers over worries that American subprime mortgages were among the assets backing the securities.
The investor committee drafted a restructuring plan last winter that proposes to convert the short-term securities into longer-term investments with maturities of up to nine years.
While the bulk of the frozen notes is held by big institutional investors, about 2,000 retail investors are also affected by the restructuring plan, known as the Montreal Accord.
The retail group represents about $400 million or 1 per cent of the total ABCP outstanding.
Most of them have struck separate bailout deals with their brokers, but getting their money back hinges on the completion of the main restructuring.

1 comment:

John M said...

Hello Ken,

Glad to see another Canadian blogger taking an interest in this issue. I think it's a scandal that this bailout is getting so little attention compared with the one for the auto industry.

We've been posting quite a bit on ABCP recently, with a scattering of articles going all the way back to August 2007, when the story broke. You might be interested in yesterday's "Secret Santa Canada in C$3.45 Billion Xmas Eve ABCP Stocking-Stuffer".

All the best, John McLeod, Halifax