Thursday, April 24, 2008

Vote on ABCP Restructure Plan to proceed tomorrow

By: Daryl Ching, Clarity Financial Strategy

I will be on the Business News Network tomorrow 10:35 AM EST to discuss this in more detail.

Despite efforts from corporate note holders over the last couple days to delay the vote and be treated as a separate class under CCAA, Judge Campbell decided to proceed with the vote on the restructure plan tomorrow in its current form. With Canaccord’s and Credential’s relief plans in place, a majority vote for Yes is a foregone conclusion. In all likelihood, the court will approve the restructure on May 2 after the vote, and we can expect a secondary market for the restructured notes to open in June 2008.

Shortly after news of a retail relief plan, corporate note holders started to raise their voices about unfairness and how they were caught in the middle with no buyout. Several motions were filed to delay the vote, be treated as a separate class under CCAA with veto power and to be waived from the legal release. All these motions have been denied, because Judge Campbell felt they would cause a failure of the restructure plan, which would have catastrophic consequences for a large number of parties.

However, Judge Campbell agreed to conduct a fairness / sanction hearing after the vote to review the legal release on a case by case basis. The legal release is an extremely important component of the restructure and was required in order to bring the various parties to the table and have them make concessions. To remove the legal release, would be a material enough change to the restructure plan, that they would need move to square one, or even worse, the parties would walk away from the restructure.

In my opinion, it is going to be extremely difficult at this point for current note holders to pursue litigation. They will likely need to be able to prove fraud or gross misrepresentation of the ABCP to be successful. The various bank dealers will point to the fact that the ABCP crisis was a systemic issue, with multiple parties to point the finger at.

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