Flaherty welcomes agreement on terms of non-bank ABCP restructuring

By The Canadian Press

OTTAWA - Federal Finance Minister Jim Flaherty is welcoming news of an agreement on the terms of the restructuring plan for non-bank sponsored asset-backed commercial paper.

"The agreement will provide a stable and effective result for investors and asset providers," Flaherty said Friday in a release.

Flaherty confirmed the federal government's contribution of $1.3 billion, which is its share of a partnership with the governments of Quebec, Ontario and Alberta.

His comments follow word Wednesday from a group involved in the talks that the Ontario Superior Court has extended the deadline for the restructuring of the $32-billion frozen asset-backed commercial paper investments until Jan. 16.

The Pan-Canadian Investors Committee for Third-Party Structured ABCP had confirmed an agreement has been reached with all key stakeholders on the restructuring program.

The committee said it can now begin the process of completing the long-awaited restructuring.

"Pursuant to the terms of an agreement reached among the governments, the dealer bank asset providers, the Canadian schedule 1 banks and the investors committee, the governments, together with certain participants in the restructuring will provide, in the aggregate, $4.45 billion of additional margin facilities to support the proposed restructuring plan," it said.

Flaherty said a successful restructuring agreement would protect financial stability and the health of Canada's financial markets.

The minister said he was confident that the use of this "backstop facility" is not likely to be required, and that the risk to taxpayers is low.

"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," Flaherty said. "It is important to note this action supports a market-led solution."

A motion for court approval will be brought in early January, seeking approval of the closing process.

Retail holders of the toxic investments, who represent only about one per cent of all involved ABCP, asked Monday that the governments make the success of any deal contingent on a separate deal for them.

In particular, the retail investors want the cap removed from a side deal promising to repay only those with $1 million or less invested in ABCP.

An estimated 99 per cent of the notes are held by institutional investors, such as pensions and businesses, but about $400 million is held by an estimated 1,800 retail accounts.

The seizure of the ABCP market was one of the first tremors of the financial earthquake that would later rock the world.