Fiona Anderson
Thursday, April 10, 2008


Canaccord Capital Inc. has sealed a deal that will repay almost all of its retail clients the money they invested in ill-fated asset-back commercial paper.

Under the offer, unnamed third parties will buy notes from more than 1,400 Canaccord clients who have individually invested less than $1 million. Canaccord will then top up the amount paid so that investors are not out of pocket.

Investors will also be entitled to share in any interest that has accumulated since the paper was frozen in August with Canaccord chipping in any money held back to cover restructuring costs.

"This is a deal that we're very proud of," Canaccord's chief operating officer Mark Maybank said in an interview. "This is a deal that we've worked on for months. And this is a deal that protects the best interests of our clients."

Canaccord clients bought almost $270 million worth of the paper. Those eligible to take up the offer hold just over half that amount, but represent 97 per cent of the clients affected.

The offer comes after a number of investors complained they had been put into ABCPs -- notes secured by mortgages, or other assets such as car loans -- through Canaccord without their knowledge or only after being assured the products were risk-free. But last August, the market for some of the notes collapsed in the wake of increasing defaults of subprime mortgages in the United States. To prevent a complete free-fall in value, institutional investors and other market participants agreed to stop trading the $32 billion worth of tainted ABCPs held in Canada, freezing not only the notes they held but also the approximately $320 million held by retail investors.

Since then, a restructuring committee led by lawyer Purdy Crawford, has come up with a plan to exchange the frozen notes for longer-term notes that would likely trade at a discount unless held to maturity, which could be as much as nine years away. That proposal is to be voted on April 25. If it passes, noteholders will lose the right to sue for losses suffered, even if they voted against the plan.

But to be approved, the plan requires the consent of a majority of noteholders who vote, throwing the decision-making power clearly in the hands of the retail investors who had been overlooked when the restructuring plan was developed. Yet these investors outnumber the institutional investors about 10 to one. Since the announcement of the plan, the retail investors have made it clear they would likely vote no, demanding nothing less than 100 cents on the dollar.

And with Canaccord offering full payment, the vote outcome will now likely be in favour.

But Canaccord clients aren't jumping up and down for joy yet.

"It's not done until it's done," said Victoria's John Phillion who had a large amount of his life savings in ABCPs at Canaccord.

"I just hope to God that everything they promise goes through as stated," he added. "I hope there's not any lurking undercurrents that ruin what's been the first nice day in seven months of my life."

Brian Hunter, a Canaccord client from Calgary, said he was "cautiously optimistic" about the deal. "We'll wait for [the cash] and when we see it then we'll high-five, but not until."

Hunter set up a Facebook group that brought together retail investors who had gone largely unnoticed. Phillion credits the group with getting a deal.

"Thank God for the power of people getting together and writing these hundreds of letters and putting pressure on these companies to do what was right."

But some investors still face an uncertain future.

Credential Securities Inc., the investment dealer for Canadian credit unions, has about 335 clients with $48 million tied up in ABCPs. On Monday Credential announced it was in discussions with industry parties looking for a solution for its clients. Credential had no update on Wednesday other than to confirm it was still working on a solution and hoped to make an announcement in the near future.

fionaanderson@png.canwest.com

© The Vancouver Sun 2008

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