Friday, May 9, 2008

With Barrick and Sun Media Made Whole - Who’s Next To Try and Push the Nuclear Button?

By: Ross Hendin, Hendin Consultants

The ABCP saga has now taken a new turn - one where have seen a few things worth noting, the most important of which is that the squeaky wheel is getting the oil.

1) It has been said that Barrick is in a unique position because of its Ironstone holdings. For clarification, Ironstone series B notes (which are the ones in question) are presently valued at less than $0.13 by JPMorgan, and are stricken with sub-prime exposure that Barrick was not told it had. As Barrick and Sun are going to be made whole, presumably because of their strong legal footing for a case against CIBC, what will happen to the other Ironstone noteholders - the ones that haven’t had the presence or wherewithal to post such serious opposition to the restructure and CIBC? As the retail clients and now Barrick have shown the market - only the most dangerous groups ready to push the nuclear button are the ones that will see anything about of the restructure, just who will be the next to go nuclear and seek a bailout?
1)Shouldn’t everyone holding that paper get a bailout as well? Presumably, misrepresentation was committed to get others involved in the notes, and depending on how the Court sees the circumstances and limits the blanket release for the Banks, we still have a 750 million dollar problem with respect to Ironstone that will need to be dealt with.

2) Is the Barrick / Sun bailout a question of their particular situation, or their resources? If it was their resources, I’d bet that class action counsel and litigation investors could find value in motions on behalf of the smaller Ironstone noteholders - of course, they’d also find a few enemies on Bay Street for even considering it. Bay Street, and now the Government, have gone to untold lengths to make sure the story behind what’s really happened here sits behind closed doors, and given how far they have gone so far, I’d imagine they would stop at nothing to keep it that way.

3) As I have started to mention in point 2, I am very curious to know exactly what would motivate CIBC to go from kicking up dust with one of its biggest and most high profile clients to having one of their senior-most executives sit down with the client and figure out a strategy to make them whole? I would call it great PR if this executive did the same with all their clients in this situation, but since the bank is leaving so many corporates out to dry, and since they were toe-to-toe so publicly, we can only imagine that Barrick not only had a great case, but that the bank has noted that Barrick (and perhaps other unknowing noteholders) are really the ones holding the cards.

So, we will wait and see what Justice Campbell says on Monday, but for now the ABCP situation has avoided another disaster.