When Calgary high-flier Dome Petroleum went into a $4-billion debt tailspin 25 years ago, the federal government recruited a special adviser to defuse a crisis that was shaping into a national banking panic.
The expert tapped by Ottawa to smack some sense into dozens of Dome's foreign and domestic creditors was Purdy Crawford, then a senior partner with Osler Hoskin & Harcourt LLP. Faced with what was then the world's largest corporate restructuring, Mr. Crawford drew on his folksy Nova Scotia charm, reputation for fairness and unflappable optimism to successfully convince feuding banks to swallow their panic and negotiate a long-term solution to what otherwise might have been a financial Armageddon.
It took five years of difficult negotiations and tense jockeying, but Mr. Crawford was proven right. By the time Dome was sold to Amoco in 1987, the company's banks recovered virtually all of their loans.
Now Mr. Crawford is being asked to work his magic again. This time he has been appointed to advise some of Canada's biggest pension and money market fund executives who are struggling to rescue an estimated $35-billion of asset-backed commercial paper ravaged by a global liquidity crisis. At stake is the financial health of investors - primarily pension funds such as the Caisse de dépôt et placement du Québec - which are major owners of the commercial paper.
Purdy Crawford, right, is steering a rescue of $35-billion of debt and is aided by Goodman's Stephen Halperin. (The Globe and Mail)
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Like Dome Petroleum 25 years ago, the commercial paper crisis is a big, scary international mess. Although Mr. Crawford currently has the backing of a majority of the commercial paper's owners and the quiet support of the Bank of Canada and the Department of Finance, more than a few players fear the crisis may be too formidable, complex and fragile even for the veteran problem solver.
For one thing Mr. Crawford may only have weeks or months, rather than the years he enjoyed at Dome, to restructure the asset-backed commercial paper because of the short-term nature of the securities. The other hurdle is that the sheer volume of moving parts. Unlike Dome, which was a single company, the troubled commercial paper involves 22 issuing trusts, each with their own unique set of assets and indentures governing the securities. Armies of lawyers are being dispatched across the country to examine the indentures and rights of various commercial paper investors.
"This is the most interesting and difficult restructuring challenge I have ever seen," said Sam Billard, a legal debt expert with Aird & Berlis LLP who is acting for potential investors in the notes.
Much has changed since Mr. Crawford rolled up his sleeves in 1982 to rescue Dome. For one thing, Mr. Crawford is 75 and no longer in the prime of his career. For another, his right arm in the Dome talks, Brian Levitt, is busy as Osler's co-chairman and his advisory role to some of Canada's major banks prevents him from aiding the bail out.
Complicating things, the moral suasion applied by the Bank of Canada in the Dome crisis has limited value in the commercial paper crisis because the majority of the banks backstopping the troubled notes are foreign and outside its jurisdiction. If, as some observers fear, foreign banks decide to pull emergency loans supporting the commercial paper, legal experts say there is little Ottawa can do to stop them.
Unlike most debt restructurings, legal experts said commercial paper investors cannot seek refuge in the safe harbour of the Companies' Creditors Arrangement Act because the trusts who issued the asset-backed commercial paper are not eligible under the act to seek court protection.
If Mr. Crawford is worried about his new high-wire act, he is not showing it. On a recent morning in his office overlooking Bay Street, Mr. Purdy breaks into his trademark apple-cheek grin when asked about concerns that the rescue mission may fail. He deflects worries about his age by saying that most of the legal heavy lifting will be done by his advisers at Goodmans LLP, headed by seasoned mergers and acquisitions adviser Stephen Halperin and including former Dome workout strategist Jim Riley.
"I have no doubt the problem will be solved," he said. "We will work urgently at this and as time goes on confidence will grow."
Time, however, is not on Mr. Crawford's side. Unlike Dome, which took years to fix, owners and lenders entangled in the commercial paper crunch have only agreed to a 60-day standstill, expiring Oct. 15, which restricts them from redeeming commercial paper.
Despite the tight deadline, Mr. Crawford said the committee is moving quickly to allay what he says is a market overreaction to the commercial paper's exposure to risky U.S. subprime mortgage loans. First, he said, the committee's administrator, Ernst & Young Inc., is preparing a confidential data room to give asset-backed commercial paper owners information about the various assets, such as auto leases, credit card receivables and mortgage payments, underpinning the securities.
The next step, he said, is to come up with a variety of solutions to address issues posed by the different classes of investors owning the paper. Some investors, Mr. Crawford said, "urgently need cash" and he hopes steps will be taken to repay them or create a market for their commercial paper. Other investors, he said, are willing to convert their paper into longer-term debts, but experts said this will involve sensitive negotiations to amend the terms of trust indentures that dictate how the various issues of commercial paper are governed.
"We are dealing with unprecedented issues," Mr. Halperin said. "Our hope is that this will end up being an exercise in deal making."
