Tentative deal reached on frozen investments

The Yukon government is one step closer to retrieving $36.5 million in limbo since the crash of the asset-backed commercial paper market.

The Yukon government is one step closer to retrieving $36.5 million in limbo since the crash of the asset-backed commercial paper market.

On December 23, a group now dubbed the Pan-Canadian Investors Committee announced an agreement in principle on its plan to restructure the notes.

“It’s very good news,” assistant deputy Finance minister Clarke LaPrairie said yesterday.

“We were always optimistic that a deal would be reached, but the certainty is very welcome.”

The committee has only released a general framework for how a future agreement might operate.

It’s complicated.

The 20 different trusts, totaling approximately $33 billion, will be pooled into two different groups.

One group is for big-money investors. They will insure the new paper by paying into a $14-billion margin funding facility that’s to be established.

The second group — the little fish — will not have to contribute to this insurance policy. However, they will reap its benefits.

The Yukon government will be part of this second group of investors.

JPMorgan, the committee’s financial advisor, expects most of the restructured notes will be low risk and receive a AAA rating.

The government’s Finance department also expects the investments will be reviewed by at least two rating agencies, said LaPrairie.

That two-agency rating is necessary under the Yukon’s Financial Administration Act.

It isn’t known how long it will take for the new investments to mature. However, the average maturity date is expected to be seven years.

It isn’t known what interest rate the investments will earn.

“We haven’t been provided the numbers at this point,” said LaPrairie.

“We’re expecting that shortly. I’m not sure exactly when.”

Asset-backed commercial paper is a third-party structured investment sold through Canadian banks.

The short-term investments allowed many investors to share revenue generated by commercial debt.

It was billed as low risk by the Dominion Bond Rating Agency and offered a slightly higher rate of return from similar notes.

Dominion was the only rating agency willing to handle the notes, and it collected a fee on every transaction.

However, the asset-backed market crashed in August as part of fallout from the US subprime mortgage market.

A consortium of banks, lenders and investors, headed by a lawyer named Purdy Crawford, was created just days after the crash to attempt to restructure the notes.

Months later, a deal was beginning to look questionable when the committee missed two self-set deadlines, December 14 being the most recent.

The recent announcement of a tentative agreement was welcomed by investors and came well before the new deadline of January 31.

Investors will vote on the acceptance of the agreement some time in February. If approved the new notes could be issued by March 14.

Once the Yukon government has the newly structured notes it may chose to sell them off before the maturity date, if it can find a buyer.

“I would expect that, given the magnitude of the amount of money involved, a secondary market will be formed,” said LaPrairie.

“That would definitely be an option.”