If the risk were all that low, there would be no need for govt. backing in the first place. The whole idea of govt. backing is to provide a guarantee that financial institutions are not willing to give to the plan.
This is from the Globe and Mail.
ASSET-BACKED COMMERCIAL PAPER
Flaherty confident 'risk to taxpayers is low'
KEVIN CARMICHAEL
December 27, 2008
OTTAWA -- Finance Minister Jim Flaherty doubts the guarantee that he and three provinces put up to save a restructuring of $32-billion in asset-backed commercial paper will ever be used.
"I am confident that the use of this backstop facility is not likely to be required, and the risk to taxpayers is low," Mr. Flaherty said in statement released by the Finance Department yesterday in Ottawa.
The statement revealed that the federal portion of the government rescue is $1.3-billion. Quebec, Ontario and Alberta contributed the balance of the $3.5-billion guarantee, which became necessary after a previous deal began to unravel.
Much of the $32-billion in ABCP is tied to the market for U.S. subprime mortgages, which collapsed more than a year ago. Investors and counterparties agreed in August, 2007, to freeze the assets to avoid a fire sale. Governments intervened at the 11th hour to keep that agreement from unravelling, allowing for a new deal on Christmas Eve.
"The government's decision to support this restructuring plan reflects its ongoing commitment to protect financial stability and ensure the health of Canada's capital markets in these very challenging times," Mr. Flaherty said.
Showing posts with label ABCP deal govt. support. Show all posts
Showing posts with label ABCP deal govt. support. Show all posts
Saturday, December 27, 2008
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
RITA TRICHUR BUSINESS REPORTER
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.
Governments to back ABCP deal with $4.45B
Dec 25, 2008 08:29 AM
RITA TRICHUR BUSINESS REPORTER
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.
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