Canada and three provinces to backstop ABCP plan

Fri Dec 19, 2008 3:13pm EST
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By Frank Pingue

TORONTO (Reuters) - The Canadian government and three provinces agreed on Friday to help fund a $32 billion restructuring plan for the frozen market for nonbank asset backed commercial paper, raising hope for a settlement after more than a year of negotiations.

The agreement comes a day after Deutsche Bank AG, Citigroup Inc and other foreign banks whose support is key to the restructuring, threatened to walk away from a deal that hinged heavily on government support.

The government's participation means that small investors may soon recover their money after waiting since the market for the troubled paper seized up in 2007, when concerns mounted about U.S. subprime mortgages.

Finance Minister Jim Flaherty said in a statement that the provinces of Ontario and Quebec had agreed to join the federal government to provide a senior funding facility. He did not provide any details on the facility.

"We expect that this will allow the investors and asset providers to achieve a stable and effective restructuring agreement," Flaherty said. "A successful restructuring agreement will protect financial stability and the health of Canada's financial markets."

The federal government first struck deals with Canada's two biggest provinces, Ontario and Quebec, then on Friday afternoon Alberta -- home to some of the institutions with the largest exposure to the at-risk ABCP -- agreed to help fund the plan.

The investor committee that has been trying to implement a restructuring plan said last week that it needed $9.5 billion in funding from "external sources" to complete the process.

The committee also said it expected to implement the plan in January, subject to approvals by key participants.   Continued...