Territory could lose millions on investment scheme

The Yukon government currently has $36.5 million sitting in limbo as a result of its holding US-based subprime loans through an investment known as…

The Yukon government currently has $36.5 million sitting in limbo as a result of its holding US-based subprime loans through an investment known as asset-backed commercial paper.

Some market analysts are predicting investors in these notes could see losses as high as 50 per cent.

That could mean $18.25 million in losses for the territory.

“I gotta tell ya, I’m not all that concerned about it,” said Finance Minister Dennis Fentie.

“We are working closely with the institutions related to this matter and on December 14 — that’s the date we’ve been provided — there will be a maturity date going forward.”

Two separate securities were bought in July and August. They were supposed to mature 30 days later.

However, the lenders announced that, due to extreme volatility in the global credit markets, they could not provide the funds.

As early as August 16, lenders and investors agreed in principle to restructure the asset-backed commercial paper into a more long-term investment.

But just how long is still up in the air.

The new maturity date will not be decided until December 14.

“The investment is technically in default,” said Opposition leader Arthur Mitchell in the house on Tuesday.

“When did the premier find out about this problem, and why didn’t he notify the public at the time?”

The Yukon government was not the only entity caught in the asset-backed commercial paper fiasco, which was caused by the US subprime mortgage market crisis.

More than $35 billion dollars is currently tied up in the commercial paper market.

Holding similar investments are the Ontario Teachers’ Pension Plan and mining companies such as Cameco Corp. and Redcorp Ventures Ltd., the company trying to reopen the Tulsequah Chief Mine.

When Redcorp discovered, on August 16, that the financial institutions might default, it held a news conference.

The company told investors it was having liquidity troubles with the $102.2 million it had invested.

Company stocks subsequently fell by 50 per cent.

The Yukon government chose to disclose the news on page 81 of the 320-page Public Accounts, which was recently tabled in the legislative assembly.

“It’s fully disclosed in the public accounts and that is the appropriate mechanism for this,” said Fentie.

“All we are dealing with to date is an extension of the maturity date itself on the note and that’s all there is to report.”

“Any reporting that this is a loss of money is false, that is not the case whatsoever,” he added.

Commercial-paper markets have been struggling around the globe as a result of the US subprime mortgage crisis.

However the problem is most grave in Canada, according to a September article in the Financial Post by John Greenwood.

In Canada, investors are finding that they cannot get their money back.

The government’s Finance department is confident that it won’t be among the money losers.

“Historically these notes are considered one of the least risky investments out there,” said Yukon director of financial systems Clarke LaPrairie.

“The individual investments we’re talking about here are rated by the rating agency as AAA, which is the highest rating possible.”

However, only one rating agency was involved in the rating scheme. And in Canada, there was no requirement to disclose which assets the investments were based on.

There are different ratings and different yields for different asset-backed commercial papers.

The papers held by the Yukon government only yield four to five per cent and were not seen as high risk, said LaPrairie.

“It’s something we’ve historically invested in.”

Investors considered them low risk, said Greenwood in an interview Wednesday. That’s because they are backed by assets.

However, those assets are not proving as solid as investors believed.

The Yukon won’t know how much of a financial hit it will receive until December 14.

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