Canadian ABCP restructuring FAQs

What is asset-backed commercial paper?

Asset-backed commercial paper, or ABCP, is short-term corporate debt that is made up of a bundle of loans like mortgages, credit card receivables and car loans. This debt is then resold to other investors, taking the original loans off the books of the company that first issued them. That can lead to lower lending standards because the originator of the loans doesn't have to worry about collecting.

What happened to the ABCP market?

All ABCP money has been stuck in limbo since last summer, when credit markets ground to a halt on the fallout from the U.S. subprime mortgage mess. ABCP holdings were frozen, since no one wanted to buy ABCP that wasn't sponsored by the big banks because of fears that it might contain subprime junk debt.

In Canada, the market for about $32-billion worth of this debt froze completely in August 2007.

About 2,000 retail investors hold some of the frozen Canadian ABCP, though their holdings amount to a fraction of the $32 billion. Most is held by pension funds and other big institutional investors like National Bank of Canada and the Caisse de dépôt et placement, the big pension fund manager in Quebec

What was the rescue plan?

Purdy Crawford, a high-profile Bay Street figure and former tobacco executive, was tapped to chair a committee to restructure the frozen Canadian ABCP. Months of negotiations followed.

In April, Canaccord Capital and Credential Securities, who together account for the vast majority of affected retail investors in Canada, both announced rescue packages that could see those owed up to $1 million getting all their money back, as long as the restructuring plan received final approval.

Later in April, investors voted strongly in favour of the restructuring plan, which would see bigger investors get new long-term notes they can sell or hold for up to nine years.

In June, Justice Colin Campbell of the Ontario Superior Court approved the restructuring plan.

Several corporations holding ABCP later filed appeals. They maintain that the plan incorrectly gives banks, brokers and the rating agency involved in ABCP immunity from lawsuits.

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