TORONTO (Reuters) - An Ontario Superior Court judge said on Tuesday that he would likely approve a massive C$32 billion ($31.8 billion) restructuring plan for Canada’s nonbank asset-backed commercial paper market this week.
“Unless something remarkable in my notes changes my mind, I’ll approve (the plan),” Judge Colin Campbell told the court.
Campbell’s decision is expected before Friday and could come as early as Tuesday afternoon when court reconvenes.
The complex ABCP restructuring plan was developed over the fall and winter by a committee of institutional investors, and won the approval of 96 percent of noteholders at an April meeting.
But a key sticking point in the plan was a broad legal release, which would have prevented investors from suing the banks and brokerages that sold them the short-term debt, which has not traded since last August.
The plan now includes an amendment to allow lawsuits in specific cases of alleged fraud.
Several lawyers for various corporate noteholders told the judge on Tuesday that the amendment defined fraud in very narrow terms, making it unlikely that many cases would proceed, prompting one to describe it as mere “window dressing.”
Judge Campbell disagreed with some of those who complained about the fraud amendment, known as a “carve out.”
“I don’t see the carve-out as being merely cosmetic,” he said.
The judge also rejected one lawyer’s view that it would be improper for the court to cut off litigation avenues in case some widescale fraud scheme were to be discovered in the future.
“I don’t have anything before me to suggest that’s a possibility,” Campbell retorted. “We have to deal with what’s here.”
The group that spearheaded the plan said that the fraud amendment has enhanced the plan, and asked the judge to ignore complaints that it should go further.
“The simple reality is something broader is not available,” Goodmans LLP lawyer Benjamin Zarnett said.
“The (fraud) carve-out, like other aspects of the plan, is a compromise.”
Last month, the architects of the restructuring plan argued that its overwhelming approval by noteholders overall should be enough to see the plan through.
The ABCP market ground to a halt last summer as concerned investors stopped buying the instruments due to their perceived exposure to the U.S. subprime mortgage crisis, and then various banks refused emergency funding to some two dozen trusts that had issued the paper.
Reporting by Lynne Olver