A restructuring plan for $32 billion in frozen asset-backed commercial paper investments moved closer to success last week when a majority of investors voted in favour of the plan.
This is good news for the Yukon, which has $36.5 million invested in the stuff.
The money has been in financial limbo since August 13, when US subprime mortgage market fears wiped out demand for third-party asset-backed commercial paper.
The paper was supposed to be safe and short-term — the Yukon’s two investments were scheduled to mature by September.
On Friday, assistant deputy Finance minister Clarke LaPrairie voted in favour of the restructuring plan. Now the investments mature in 2016.
Most investors accepted the plan, with 96 per cent supporting the deal.
But investors aren’t out of the woods yet.
The next step will be an approval by Ontario Superior Court Judge Colin Campbell, who will rule on the fairness of the deal.
Purdy Crawford, the Bay Street lawyer who spearheaded the restructuring, has said he’s optimistic that the judge will approve the deal.
“Most of the investors voted in favour,” said LaPrairie.
“So I think there’s a strong argument to be made that there’s support for the deal.”
Campbell was supposed to reach a decision this Friday, but is pushing the hearing to next week to get more details.
As part of the restructuring plan, investors will have to surrender their right to sue the banks and institutions that sold them the paper.
This broad legal immunity is unfair and may be illegal, lawyers representing many commercial ABCP holders have said.
On Tuesday, Campbell ordered these lawyers to come back later this week with details on who wants to sue whom, and for how much.
A representative of one such investor stood up at the investors’ meeting in Toronto to say that he was voting against the plan, said LaPrairie.
“They don’t want to waive their right to sue.”
If the judge rules that the restructuring plan is indeed fair, the Yukon government could have the new notes as early as May 30.
The majority of the once short-term paper will then mature in December 2016 — about eight and a half years from now.
Investors will also be paid interest for the period that the investments have been frozen.
The fees for the group that restructured the plan will be subtracted from that interest and then paid out in early June.
LaPrairie is not yet aware how much of this interest the Yukon will receive.
The lawyer fees are said to be between $80 and $100 million for which the Yukon, based on it’s relatively small investment, will have to pay around $100,000.
Once the Yukon government has the investments in hand, it will have to decide whether to sell or wait until maturity.
Analysts have said that selling the paper ahead of time could lead to significant loses to the tune of 60 cents on the dollar.
“We’re not necessarily selling on May 30,” said LaPrairie.
“But it’s hard to say what will happen eight and a half years into the future.”
Right now the government doesn’t expect to need the $36.5 million in the foreseeable future and can afford to wait, he added.