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Cablegate: Abcp Appeal Could Delay Settlement Implementation

VZCZCXRO6460
PP RUEHGA RUEHHA RUEHMT RUEHQU RUEHVC
DE RUEHON #0204 1821339
ZNR UUUUU ZZH
P 301339Z JUN 08
FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC PRIORITY 2534
INFO RUCNCAN/ALCAN COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0061
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS TORONTO 000204

SIPDIS
SENSITIVE

STATE FOR WHA/CAN (RIOS) AND EEB (SIROTIC)
DEPT PASS USTR FOR MELLE, MENDENHALL, SULLIVAN
TREASURY FOR INTERNATIONAL AFFAIRS (TRAN)
COMMERCE FOR 4320/ITA/MAC/WH/ONIA (WORD)

E.O. 12958: N/A
TAGS: EFIN EINV ETRD PGOV CA

SUBJECT: ABCP Appeal Could Delay Settlement Implementation

REF: (A) Toronto 164 (B) Toronto 115 (C) Toronto 87
(D) Toronto 81

Sensitive But Unclassified - Please protect accordingly.

1. (SBU) SUMMARY: A group of Canadian corporations filed and has
argued an appeal of Ontario Superior Court's June 5 approval of the
restructuring plan for the frozen C$32 billion third-party
asset-backed commercial paper (ABCP) market, claiming they were
misled about the risks of the investments. It is unclear how long
the appeal may delay the restructuring plan's implementation, which
earlier was expected to be completed by the end of June. Purdy
Crawford, chair of the ABCP restructuring committee, separately told
Toronto business leaders in a closed-door session that he recommends
carefully measured regulatory reform in response to the ABCP market
collapse last summer. END SUMMARY.

2. (U) On June 5, after months of negotiations, Ontario Superior
Court judge Colin Campbell approved the Crawford committee's
restructuring plan of the C$32 billion third-party asset-backed
commercial paper (ABCP) market, including a provision enabling
noteholders to sue ABCP dealers for fraud. The 1,781 retail
investors who hold C$215 million of the total C$32 billion ABCP
market, will receive 100% of their money promptly under repurchase
plans launched by Canaccord Capital and Credential Securities. The
market's 200 corporate investors, however, will not be eligible to
cash out on their investments immediately, but instead are to
receive long-term notes that will mature in nine years (Ref A).

--------------------------------------------- ----
Corporate Investors Appeal Ontario Court Decision
--------------------------------------------- ----

3. (U) A group of Canadian corporations has said they will fight the
approved plan, claiming that they were misled about the risks of
ABCP and should be able to sue for damages. Their appeal was heard
in the Ontario Court of Appeal on June 25-26. The investor group is
comprised of private and public companies from across Canada. On
June 23, one of the appellants, Transat A. T., dropped out,
announcing it had struck a deal with National Bank of Canada. The
bank has agreed to provide the company with a three-year credit
facility for up to 75% of Transat's C$143.5 million ABCP holdings in
exchange for Transat's agreement to drop its appeal.

-------------------------------------
Calls for Measured Regulatory Reform
-------------------------------------

4. (SBU) ABCP restructuring committee chair Crawford has called for
measured regulatory reform in response to the collapse of the
market. He cautioned that regulatory reform must balance risk and
market efficiency, as well as be globally integrated. Crawford
plans to appear before the House of Commons' finance committee in
the near future to provide his recommendations on regulatory reform.
Crawford and other market experts are calling for improved
transparency for noteholders and investors at large. Under current
regulations, ABCP and other short-term debt issuances do not require
prospectus disclosures. Regulatory bodies such as the Investment
Dealers Association (IDA), continue to investigate the behavior of
ABCP retailers. Though the IDA can sanction brokers for
inappropriate behavior, it does not have the authority to recover
lost funds (Ref A).

5. (SBU) COMMENT: Legal experts have been reluctant to speculate on
the possible outcome of the appeal, but clearly it will force
further delays before final resolution of the ABCP market. If
unsuccessful at this level, the appellants could still take their
case on to the Supreme Court of Canada (SCC). The extent of the
delay will also depend on how many appellants actually go to court,
as some may just be using the appeal as leverage in settlement
negotiations with lenders (The same tactic was used unsuccessfully
by bondholders opposing the BCE (Bell Canada) leveraged buyout).
Analysts tell us they believe the stability of Canadian financial
markets depends on the restructuring plan's success. Retail
investors reportedly remain optimistic that the restructuring plan
will proceed since 96% of investors voted in favor of the plan. END
COMMENT.

NAY

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