Canaccord unveils rescue package for ABCP investors

More than 1,400 retail clients of Canaccord Capital who've had money tied up by the credit crunch have been offered a rescue package that could see them get all their money back.

More than 1,400 retail clients of Canaccord Capital who've had money tied up by the credit crunch have been offered a rescue package that could see them get all their money back.

Under terms of the relief plan, Canaccord will buy back at par the now frozen investments from all of its clients who hold $1 million or less.

The plan calls for the purchase of up to $138 million of the debt. Canaccord estimates that 1,430 clients (97 per cent of those who hold the notes) will be eligible for the program.    

"After months of negotiation and evaluating numerous bids from parties interested in purchasing the notes, our client relief program and the related charges represent the best possible outcome in this unprecedented disruption in the Canadian capital markets," said Canaccord chief operating officer Mark Maybank in a statement. 

Canaccord won't identify who else has agreed to buy the distressed notes.

To account for the relief plan, Canaccord will take a one-time $39.6 million after-tax charge against its fourth-quarter earnings. Canaccord stock rose nine per cent following a trading halt on the TSX.

About 1,800 retail investors — most at Canaccord — were caught last year by the sudden collapse of the market for asset-backed commercial paper (ABCP) last August. That's a short-term debt product that bundled a variety of loans together, including U.S. subprime mortgages, and was then sold to investors small and large.

But when the subprime market began to fall apart last summer, their holdings were frozen as no one wanted to buy ABCP that wasn't sponsored by the big banks because of fears that it might contain subprime junk.

A committee has been trying to restructure the debt and unstick the frozen ABCP market in Canada. Under the terms of a proposed restructuring deal, investors would have to wait up to nine years to get their money back and agree not to sue. If the deal falls apart, they risk getting as little as 20 cents on the dollar, some estimates say.

Approval by retail investors crucial

The committee that worked out the restructuring deal said Wednesday it welcomed the Canaccord announcement.

"We believe this is an important step in resolving the concerns of smaller noteholders," said committee chair Purdy Crawford in a statement. "We have consistently expressed our empathy for the plight of these noteholders, many of whom we recognize face dire circumstances," he said.

The retail investors hold just a fraction of the $32 billion in frozen ABCP debt. Most is held by pensions funds and other big institutional investors. But because each investor gets one vote, approval of the smaller investors is crucial for the restructuring to go ahead. The vote is scheduled for April 25. 

At public hearings that began last week, retail investors lashed out at the proposed restructuring as too complex and unfair to their interests. Many say they can't wait nine years to see money. Six of the affected retail investors were scheduled to testify before the House of Commons finance committee on Thursday.

Finance Minister Jim Flaherty said the Canaccord deal makes it more likely the proposed restructuring will succeed.

"The arrangement announced today can serve as a model for the remaining group and individual investors," he told reporters in Ottawa.

Canaccord's rescue plan is conditional on the successful restructuring of the ABCP.