Canada ABCP overhaul adds value, architects say

By Lynne Olver

TORONTO (Reuters) - Attempts to fix the mess in a corner of Canada's asset backed commercial paper market leaped an important hurdle with the release of a restructuring "agreement in principle" on Sunday, but noteholders still face uncertainty about how and when they'll get their money back.

The architects of the agreement said on Monday their broad plan to convert the frozen notes into longer-term paper gives all investors in nonbank ABCP a better option than they had last August, when the credit crisis first emerged in Canada and they faced the prospect of an asset firesale.

"The reality is, we're increasing the value of the notes that would come out of the restructuring from what people hold today," corporate lawyer Purdy Crawford, head of a committee of large investors, told a conference call on Monday.

The plan will divide C$33 billion ($33 billion) of existing notes into three pools, one of which contains C$3 billion of assets tied to risky U.S. subprime mortgages, and another that includes about C$3 billion of traditional securitized assets, such as credit card receivables and auto loans.

The largest pool is about C$26 billion worth of synthetic assets, which will be transformed into floating rate notes expected to average seven years to maturity.

That could be "a hard sell" for investors who had bought the paper to park cash for the short term, said Michael Sprung, president of Sprung & Co. Investment Counsel.

"In some cases, some of this paper won't mature for seven years. Even if you say money is worth 4 percent, if you're told to hold on to it for seven years, that's like a 30 percent or more discount that you're being asked to take today," he said.

"I guess the alternative is not very pleasant either."