ABCP money to start flowing this month: court ruling

Companies will be able to get some of the $32 billion stuck in Canada's frozen asset-backed commercial paper market starting Jan. 16, thanks to an Ontario court ruling announced Monday.

The Ontario Superior Court approved a complicated and controversial deal to swap essentially non-tradable, mortgage-backed debt for new securities, said the Pan-Canadian Investors Committee for Third-Party Structured Asset-Backed Commercial Paper, the organization responsible for the agreement.

The judicial OK means that, starting Friday, investors can either get money back for their impaired ABCP holdings or starting trading a new type of bond for which they would have swapped their land-backed debt.

"After more than a year of patience and understanding on the part of investors, both large and small, and through the efforts and compromises of all the stakeholders around the table, we are very pleased to be entering this final phase of the restructuring," said Purdy Crawford, the committee's chair.

"While no one could have predicted the scope and extent of the challenges that we've faced along the way, we continue to believe in the benefits of this restructuring and are pleased that we are arriving at its long-awaited and successful conclusion," he said.

Canada's home-grown mortgage crisis began 17 months ago when large lending institutions refused to provide short-term financing for this exotic type of commercial debt.

As a result, no one was willing to trade the paper and those individuals and companies that held the debt were staring at worthless investments.

Then came months of difficult negotiations as different investors tried to squeeze the most they could from any potential settlement.

Banks' threat prompts government action

The financial brinkmanship culminated in December's threat by some banks to walk away from the proposal settlement, an action that led to $3.5 billion in guarantees from Ottawa and the governments of Quebec and Ontario.

Under the current deal, investors who had bought less than $1 million in ABC paper will get a refund from the brokerage firms that initially sold them the financial vehicle.

The National Bank of Canada, the Caisse de depot et placement du Québec and some other larger players will receive new bonds for their investments, debt instruments that in all likelihood will trade at a large discount to their face values.