ABCP interest expected to flow next month

Next month, the Yukon government expects to recover some of the interest it was supposed to earn through $36.

Next month, the Yukon government expects to recover some of the interest it was supposed to earn through $36.3 million it put in asset-backed commercial paper last year.

The last obstacle blocking the government from recouping its money was lifted last Thursday, when the Supreme Court of Canada dismissed an appeal to a restructuring plan that will repay $32 billion to thousands of Canadian investors.

“We’re obviously pleased,” said Clarke LaPrairie, assistant deputy minister of Finance. “The legal hurtles have been cleared.”

So ends months of uncertainty over the fate of public money that the Yukon government invested in the hope of earning a cool $200,000 in just 30 days.

It did so by investing money in asset-backed commercial paper, or ABCP, a form of short-term investment that generates money from bundles of debts, such as car loans, credit card balances and mortgages.

The ABCP market collapsed, in August 2007, after it was revealed some ABCPs were tied to sketchy US housing loans.

To prevent a fire sale of ABCP in Canada, investors crafted a restructuring deal to trade the short-term investments for longer-term ones.

So, money paid to the territory next month will only begin to cover the interest that the government should have received from its investments last year, less the cost of legal fees, said LaPrairie.

An additional interest backpayment will be made in several months, he said.

It is not yet clear how much the government will receive, due to the complexity of the deal, said LaPrairie.

“It’s probably the most complicated restructuring in Canadian history. There are lots of details to be worked out.”

Next month, the territory will also receive $36.3 million in long-term investments.

Most of these investments will mature in 2016.

Interest will be paid at .5 per cent less than the bank rate — a floating interest rate used by banks to loan money to other institutions.

That will yield returns less lucrative than the territory expected to receive from ABCP, but “it will still be better than if we invested in Government of Canada treasury bills or just left money in the bank,” said LaPrairie.

By investing in ABCP, the Yukon’s Finance officials broke territorial law, according to a report issued in February by Canada’s auditor general Sheila Fraser.

The investments did not meet several conditions of the Yukon’s Financial Administration Act, the report states.

For example, the act requires any investment of public money be placed in a security that has been top-rated by two banks.

The ABCP investments were only top-rated by one bank.

In addition, the territory never sought a legal opinion prior to making the investments.

Nor was this the first time the territory dabbled in ABCP. It had made similar investments in past years.

If the Yukon government loses money in the snafu, officials responsible for the investment are required to repay the lost amount, the act states.

Since the ABCP fallout, the finance department has changed its investment policy, “to be more specific and clear,” said LaPrairie.

Among the changes is a ban on further investments in ABCP, or similar products.

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