The Yukon government says it will recoup $36.5 million in frozen investments through new long-term investments.
However, the new paper is not guaranteed by any banks and still may be illegal under the Yukon’s Financial Administration Act.
On Monday the committee charged with restructuring the devastated asset-backed commercial paper market went to court to ask for bankruptcy protection for $32 billion in paper.
It was the largest bankruptcy protection case in Canada’s history.
After Ontario Superior Court Justice Colin Campbell approved the creditor-protection request, details were released to investors.
The money will be returned to the Yukon in three separate classes of paper.
Class A paper pays out interest quarterly and has an interest rate a half a point below the bankers’ acceptance rate.
Currently, that would fall a little below three per cent.
The government will receive $33 million in Class A paper.
As well, $2.5 million will be returned in Class B paper, which has the same interest rate but doesn’t pay out until maturity.
The remaining $1 million will be lumped into Class C paper, which also doesn’t pay out until maturity.
Finance officials do not yet know what interest rate they’ll receive on the Class C paper, but expect it to be higher than the other two.
All three classes of paper will mature on December 31, 2016.
Class A paper will begin paying back some of its principal after five years.
The government might even recover interest lost since the commercial paper market tanked in August — around $1.2 million.
However, a portion of this money will be skimmed off the top to pay for the legal expenses of the restructuring.
There is still a danger that the government will not receive all of its money.
Similar to the previous investments, the new paper will not have a bank guarantee.
And so far it is only rated by one rating agency.
Dominion Bond Rating Service, the same agency that rated the old, frozen paper, has given the new paper a AA rating.
Without a bank guarantee or a second rating on the paper the new paper will be illegal under the territory’s Financial Administration Act.
Liberal financial critic Don Inverarity is not “optimistic” about the new paper.
“It’s never good news when your money goes into bankruptcy court; that was my initial reaction,” he said.
“The reality is we still may never see the $36.5 million. Yes, if the agreement goes forward there is that possibility, but there are no guarantees that this money is safe.
“The banks have said, ‘We don’t guarantee this issue.’”
If the new paper is deemed illegal the government may have to request an exception to the Financial Act in legislature.
The government is healthy enough financially to wait out the eight-year maturity date, assistant deputy finance minister David Hrycan said during a news briefing on Tuesday.
However, if the government decides not to hold on to the paper, it could sell it in the secondary market that’s expected to start up once the restructured paper is issued.
But if sold before maturity, analysts are suggesting that the paper may sell for less than par value.
Inverarity doesn’t yet know what the Liberal opposition will push for.
“I can’t speculate on that at the moment,” he said.
“There are still too many unanswered questions.”
The restructuring deal is still subject to the approval of the investors, who will be holding a vote on it sometime in April.
Noteholders expect to receive the restructured paper in May.
All investors in commercial paper may not be as lucky as the Yukon government.
“We’ve never said that all the investors will get all their money back,” Purdy Crawford, the Bay Street lawyer leading the restructuring, said during a conference call on Monday.
“It’s very difficult to predict in these markets.
“If things stabilize in the next few months, the chances of recovery will be much greater, but I wouldn’t want to say that everybody’s going to get all their money back at maturity.”