An Ontario Superior Court judge has approved a plan to restructure 20 trusts tied up with $32 billion of frozen asset-backed commercial paper.

What is ABCP?

ABCP — asset-backed commercial paper — is short-term corporate debt that is made up of a bundle of loans like 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. ABCP tends to yield more than treasury bills, making it a popular place for money market funds and pension funds to park money. In Canada, about two-thirds of the $120-billion ABCP market is sponsored by the big banks. The rest is known as third-party, or non-bank ABCP.  In 2007 and 2008, holders of some non-bank Canadian ABCP ran into trouble refinancing the debt when the credit crunch made investors shy away from any investment perceived to be risky.

In a filing under the Companies' Creditors Arrangement Act, the Pan-Canadian Investors Committee for Third-Party Structured ABCP asked the court to appoint Ernst & Young Inc. to act as monitor while the trusts are restructured. The motion was granted.

The committee has been working since last summer to get the money unstuck, and has asked the court to call a meeting of the ABCP noteholders to approve its restructuring plan.

"The committee is unanimously supporting the plan, and I am recommending that all noteholders approve the plan in order to avoid a forced liquidation of conduits and the significant losses that would likely ensue if the plan were not to move forward," committee chairman Purdy Crawford said in a release.

Under federal creditor protection law, the restructuring plan must be approved by majority of the noteholders, as well as by voting noteholders who own at least two-thirds of the value of the ABCP.

The noteholders will have a month to look over the details of the restructuring. They'll vote on it in April.

In a conference call Monday evening, Crawford said each noteholder would get one vote, regardless of the size of their individual stake.

"We are really committed to do everything we can [to] help individual or small investors," he said.

But he said it's too early to say how much of that $32 billion investors will get back. 

"If things stabilize in the next few months, the chance of recovery will be much greater, but I wouldn't want to say that everyone is going to get all their money back at maturity."

While companies, pension funds and financial institutions are among the big noteholders who've been left with frozen debt they can't sell, hundreds of smaller investors who parked their money in what they thought was a secure spot have also been caught by the credit squeeze.

With files from the Canadian Press