When $34-billion of asset-backed commercial paper was paralyzed in August, dozens of Canadian investors were cut off from savings they depend on to run their businesses and governments. Here are some of the walking wounded.
Buyer: Yukon
The Holdings
$36.5-million of Coventree ABCP
The Damage
About 15 per cent of Yukon's total cash is locked up in the troubled notes. The territory waited until November to reveal its exposure in a 320-page public accounts report to the Legislature and the news unleashed a political firestorm. Opposition leaders have called for an investigation and the resignation of Yukon's Premier, Dennis Fentie. "We're a small jurisdiction and it is a lot of money," said Clarke LaPrairie, assistant deputy minister of financial operations and revenue services. The territory has no immediate need to recover the investments and has agreed to stand by while the Montreal Accord of investors led by Toronto lawyer Purdy Crawford seeks to restructure the stricken notes. "We're putting our faith in Mr. Crawford," said Mr. LaPrairie.
Buyer: Dundee Bank of Canada
The Holdings
$400-million of ABCP
The Damage
After the bank was formed a year ago by Toronto investor Ned Goodman, it chose ABCP as a place to invest some of $2-billion in deposits it received from customers. Much of the money was invested in an ABCP trust co-founded by Dundee, Skeena Capital. When Skeena was unable to sell its ABCP, three of the four banks on the hook for emergency loans agreed to advance funds under liquidity agreements. One bank, RBC, declined, leaving Skeena with insufficient money to repay investors. A furious Mr. Goodman lambasted banks that took a similar position, saying "the banks have essentially reneged." A month later, Mr. Goodman agreed to sell his cash-strapped bank and a stake in DundeeWealth Inc. to Scotiabank - one of three lenders who did advance money to Skeena.
Buyer: New Gold Inc.
The Holdings
$158.9-million of ABCP sponsored by Coventree
The Damage
The company raised nearly $400-million of debt and equity in June to pay for the construction of its planned New Afton gold and copper mine west of Kamloops, B.C. Near the end of July, New Gold invested 40 per cent of the cash in ABCP to earn interest while the company waited to begin construction on the mine. The company got its mining construction permit Nov. 1 and currently has enough cash to pay for supplies and about 75 employees at the site. Chris Bradbrook, chief executive officer of New Gold, said it will need the stranded ABCP money as the mine gets closer to its startup date in 2009. "This is not an esoteric financial problem. It is a real situation that affects the livelihood and welfare our employees, shareholders and debt holders."
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Buyer: Jean Coutu
The Holdings
$35.7-million
The Damage
From Aug. 2 to Aug 10, the pharmacy chain placed orders with National Bank to buy $35.7-million of ABCP. Although there were signs the ABCP market was in distress, Jean Coutu's CFO, André Belzile, said National, its bank of 45 years, made no mention of the turmoil. Three days after Jean Coutu made its last purchase, a bank official called to alert the company that repayment of some of the paper had been "temporarily" delayed. A week later, a bank official phoned again with the news that there was no money to repay the entire $35.7-million. Jean Coutu says it has no urgent need for the cash. But, if the chain has to absorb a writedown on the notes, it will "reassess" its relationship with the bank. "It's a large amount and we want our money back," Mr. Belzile says.
Buyer: Sun Times
The Holdings
$48-million of Coventree and National Bank ABCP
The Damage
Could it get any worse for this company? Once the U.S. arm of Conrad Black's newspaper empire, the Chicago company has seen its name and holdings diminished by its former proprietor's legal and financial
setbacks. In November it took a $4.8-million (U.S.) charge against its ABCP holdings. About $28-million of the ABCP owned by Sun Times was issued by Ironstone, a National Bank sponsored conduit. Ironstone was
unable to find new investors for its ABCP and its bank, Canadian Imperial Bank of Commerce, declined to provide liquidity support. History buffs will note that CIBC's ties to the Black family go back four decades, when George Black was appointed a director to the bank's board. He was replaced by Lord Black in 1976.
Buyer: Redcorp
The Holdings
$90-million of Coventree ABCP
The Damage
Redcorp sold $250-million of debt and equity to investors in July to finance the construction of its planned Tulsequah zinc, copper and lead mine in northern British Columbia. The junior mining company said HSBC advised it to invest in ABCP while it waited for the government to green-light its mine. Redcorp won mining permits last month, but $90-million of its cash is locked in ABCP. The stranded notes equal more the 90 per cent of the total $99-million market value of Redcorp's stock. The junior mining company has hired workout lawyer and banker Peter Dey to help the company navigate a solution to its cash crunch. Mr. Dey is also chairman of Paradigm Capital, the lead underwriter of Redcorp's recent debt and equity issue.
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