Canadian conduit restructuring moves to the courts

Plans to restructure Canadian asset-backed commercial paper conduits are set to move to the courts today, after a standstill period expired last Friday. A report in the Globe and Mail says the filing will call for conversion of the ABCP trusts into corporations so that they are eligible for bankruptcy protection. The report says that the committee leading the talks is expected to ask a judge at the Superior Court of Ontario to take control of the rescue and grant the notes protection under the Companies’ Creditors Arrangement Act.

The paper reports that if successful, assets linked to the ABCP will be protected from default notices and other potential claims until a restructuring is approved by the courts. Expiry of the standstill agreement on Friday freed the way for investors to declare defaults, it says.

Some $33 billion of asset-backed commercial paper is caught up in the restructuring. Meanwhile, the conduits are holding leveraged super senior exposure totalling a notional amount of $200 billion.

A statement issued by Pan-Canadian Investors Committee chairman Purdy Crawford says the filing will “continue the protections to date kept in place under consensual standstill arrangements”. He added it will “provide noteholders an opportunity to consider fully the Committee’s proposal in an informed way”.

The Globe and Mail says some legal experts predict the restructuring could become entangled in court battles for months. It also says people close to the Pan-Canadian Investors Committee have privately advised some ABCP investors that they now expect to repay an average of 80 cents on the dollar for the frozen ABCP. When restructuring proposals were initially drawn up, last December, noteholders were advised thay could expect to receive full principal repayment on restructured notes held to maturity.