Saturday, March 1, 2008

ABCP Restructure has been delayed to April

By: Daryl Ching, Clarity Financial Strategy

The Crawford Committee announced in a press release that complete information on the Restructuring Plan (including sufficient information to enable all investors to make a fully informed decision) and details of the approval process will be made available by March 14, 2008. The intention is to give noteholders one month to review the Plan, seek approval by mid-April and then close by end of April. The Committee is still optimistic that the Canadian banks will support the Restructuring Plan, despite BMO’s announcement that they may walk away from the table.

As the release did not confirm an extension of the Standstill, can we implicitly assume that the Standstill Period has been extended? I wanted to confirm for myself that the Standstill Period had been extended, as a document is executed each time that happens. This is important because the Standstill Agreement calls a ceasefire on several actions including margin calls, law suits, and liquidity draws. Without the Standstill in place, any party can call an event of default, which would unwind the whole process.

The latest Standstill Agreement was executed January 25, 2008. It basically states that the Standstill Period will be extended to March 14 on the condition that all parties provide written confirmation by February 22. If this condition was not satisfied by 5:00 PM EST on February 22, then the Standstill Period should have expired at 5:00 PM EST on February 22. Did the Committee receive all the written confirmations by 5:00 PM on February 22? If not, should there be another document that supersedes this one to confirm the Standstill extension?

I think investors need to continue directing some tough questions to the Crawford Committee:

  • Has the Standstill Agreement been extended to March 14? If so, where is the underlying documentation?
  • What information will be available in the Restructure Plan? Will the Committee release all the methodologies for the rating as well as data so investors can seek a second opinion on the valuations, or will they need to rely solely on JP Morgan?
  • Why is Mr. Crawford still optimistic about rallying Canadian bank support in light of what has happened with BMO, and even CIBC? What kind of arm twisting exercises are taking place behind those closed doors to force them to participate?
  • If the Canadian banks will not participate, does the Committee have a backup plan? Will JP Morgan step in?
  • Has the Committee considered restructuring to a lower rating so we can stop this arm twisting exercise and trying to force banks to participate in a margin facility before credit conditions get worse and everyone leaves the table?
  • Exactly what measures are being taken by The Committee to encourage liquidity for the restructured notes?

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