Investment status still a mystery

Finance officials still don’t know the fate of the Yukon’s $36.5-million investment in third-party asset-backed commercial paper.

Finance officials still don’t know the fate of the Yukon’s $36.5-million investment in third-party asset-backed commercial paper.

In August, the government’s illegal investment fell into limbo when market panic provoked a crash in the value of the paper, which was associated with the US subprime mortgage debacle.

A committee led by lawyer Purdy Crawford immediately rushed in to broker a deal between banks, lenders and investors.

A tentative deal to restructure the short-term paper into long-term debt was struck just before Christmas.

Important details, such as how much of the original investment paper holders could expect to receive, were promised by the end of February.

That deadline has now been pushed forward.

Complete details on the restructuring plan are now expected on March 14, the committee said in a news release.

“Given the complexity of the restructuring, the committee has also decided that it will give noteholders more time to examine and consider the merits of the restructuring plan,” it said.

“As a result, a meeting of noteholders is expected to occur in mid-April, with a closing toward the end of April 2008.”

Yukon Finance officials are not worried about the delay.

“As long as the restructuring is happening we’re not really concerned about two weeks here or two weeks there,” said assistant deputy finance minister Clarke LaPrairie.

However, some financial analysts are growing concerned about the progress of the restructuring.

One problem, they say, is that a large chunk of the assets underlying the paper was made up of leveraged credit default swaps.

They act as an insurance policy on debt, but are paid through an exchange of interest earned on that debt.

If a company defaults, the seller of the credit default swap has to pay their share of the remaining debt.

The asset-backed commercial paper trusts sold these insurance policies. And, because of increased defaults provoked by the global credit crunch, those trusts have been paying out more and more insurance money.

So the value of their assets have been falling. And that could mean less money to pay back commercial paper holders.

“I’ll wait until the details come out to comment on that,” said LaPrairie.

“Definitely that is happening in the markets, but then you see that the government of Canada has dropped its (interest) rate a half a per cent.

“That will be beneficial.”

Earlier this month, auditor general Sheila Fraser found that the Yukon government had broken the law when it invested in the third-party paper.

Finance Minister Dennis Fentie dismissed her finding as “an opinion”. He suggested he had other opinions on the matter, but wouldn’t challenge her finding.

The Financial Administration Act states all investments must be backed by a government, guaranteed by a bank or given the highest safety rating by two or more bond rating agencies.

Asset-backed commercial paper did not meet any of these requirements.

There was no malicious intent behind the investment, noted Fraser.

Justice officials will not say if they are investigating the matter.

The government’s $36.5- million investment is in limbo until the details of the restructuring deal are worked out.

So far, the Yukon has lost six months’ interest on the money.

Contact Chris Oke at chriso@yukon-news.com

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