VZCZCXRO6559
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHON #0087/01 0871813
ZNR UUUUU ZZH
P 271813Z MAR 08
FM AMCONSUL TORONTO
TO RUEHC/SECSTATE WASHDC PRIORITY 2410
INFO RUCNCAN/ALCAN COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0054
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 TORONTO 000087 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT PASS USTR FOR MELLE, MENDENHALL, SULLIVAN 
TREASURY FOR INTERNATIONAL AFFAIRS (TRAN) 
COMMERCE FOR 4320/ITA/MAC/WH/ONIA (WORD) 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ETRD PGOV CA
SUBJECT: Crawford Committee Seeks Retail Investor Support 
 
REF:  (A) Toronto 81 (B) Toronto 66 (C) 07 Toronto 430 
 
Sensitive But Unclassified - Please protect accordingly. 
 
¶1. (SBU) Summary: On March 26, Purdy Crawford, Chair of the 
Pan-Canadian Committee, described his committee's plan to 
restructure the C$33 billion third-party (non-bank sponsored) 
asset-backed commercial paper (ABCP) market to a crowd of over 500 
financial sector leaders in Toronto.  Crawford is working to 
convince a majority of the 1,600 reluctant retail investors to vote 
in favor of the restructuring plan on April 25.  If the retail 
investors do not back the restructuring plan, Crawford is afraid 
that the market will unravel and there will be a fire sale.  This 
could increase instability in Canada's financial sector, which until 
now has been affected relatively little by U.S. market events. 
Financial sector insiders expect the non-bank ABCP market collapse 
will prompt financial sector regulatory reform in Canada, but not 
until the dust settles on a fully restructured and functioning ABCP 
market.  End Summary. 
 
¶2. (SBU) On March 26, Purdy Crawford, Chair of the Pan-Canadian 
Committee tasked with restructuring the C$33 billion third-party 
(non-bank sponsored) asset-backed commercial paper (ABCP) market, 
told more than 500 Toronto-area financial service leaders that 
investors should back his committee's restructuring plan.  Working 
under temporary protection provided by an Ontario court on March 17 
(ref (A)), Crawford and his committee must convince a numerical 
majority of about 1,600 reluctant retail investors to formally 
endorse the restructuring plan on April 25.  Under the 
court-sanctioned agreement, a numeric majority of all investors, 
regardless of the value of their individual ABCP holdings (ranging 
from C$150K for an individual note holder up to C$23.2 billion for 
the Caisse de dptt et placement du Qubec), must approve the 
restructuring plan in order for it to go forward. 
 
---------------- 
"Facebook Group" 
---------------- 
 
¶3. (SBU) A group of individual retail investors, referred to as the 
"Facebook Group," who collectively bought C$269 million of the 
short-term paper through Vancouver-based Canaccord Capital, 
reportedly are pushing Canaccord and other vendors to ensure that 
retail investors receive close to 100% of the value of their paper 
before they vote on the restructuring plan in April.  Crawford told 
the Toronto audience that he was prepared to make a deal with these 
investors, but could not guarantee 100 cents on the dollar.  While 
there were no retail investors on his committee, Crawford explained 
that their omission was not intentional.  The investor group only 
came forward, he said, after 90% of the committee's work had been 
completed.  The committee is reportedly working to convince 
financial institutions to loan investors up to 80% of the value of 
their ABCP for up to nine years (the duration of the longer term 
paper the investors would receive in exchange for their frozen 
holdings). 
 
¶4. (SBU) On March 26, the Facebook Group announced that they have 
retained Toronto-based legal counsel and an investor advocate to 
review the restructuring plan.  The group's legal counsel reportedly 
aims to negotiate a deal that allows retail investors to sell their 
ABCP immediately at full face value.  Under the committee's proposed 
agreement, all investors will receive new notes, with long-term 
maturity dates of up to nine years (the original notes matured in 
three months), that better reflect the maturity of the underlying 
assets (e.g., car loans and leases, mortgages and home equity loans, 
as well credit card receivables).  The Facebook group members claim 
they are experiencing financial hardship because they do not have 
access to their funds, which initially were invested in short term 
savings products on the advice of their brokers.  Crawford pointed 
the finger at investment dealers, who, he says, wrongly advised some 
investors to buy ABCP, whose complexity made it difficult for 
individual investors to fully understand its risks and benefits. 
 
¶5. (SBU) Investors are also reportedly balking at the proposed 
deal's prohibition on lawsuits against the issuers and retailers of 
the non-bank ABCP.  The 20 trusts that issued the non-bank ABCP were 
regulated by the Ontario Securities Commission (OSC - for 
Ontario-based trusts) and the Autorit des marchs financiers (AMF - 
for Quebec-based trusts).  As part of the restructuring plan, 
provincially registered trusts were pooled together into several 
federally registered corporations, which could then be protected 
under the Companies' Creditors Arrangement Act (CCAA).  The Canadian 
banks that provided the underlying assets packaged by the trusts are 
regulated by the federal Office of the Superintendent of Financial 
Institutions Canada (OSFI).  Some of the underlying non-bank ABCP 
 
TORONTO 00000087  002 OF 002 
 
 
assets were provided by international banks that do not operate in 
Canada, so are not subject to Canadian financial sector oversight. 
The investment dealers who sold these investment instruments to 
their clients are self-regulated through the Investment Dealers 
Association of Canada (IDA). 
 
------------------- 
Crawford Optimistic 
------------------- 
 
¶6. (SBU) While the deal is not yet sealed, Crawford expressed 
optimism that the committee would be able to strike a deal with the 
retail investors.  Crawford stressed that the underlying assets are 
of relatively high quality (only 4 - 6% of the underlying assets are 
linked to sub-prime mortgages), and should provide investors with an 
income stream before the notes mature.  Crawford said he believes 
the plan benefits all stakeholders, including retail investors, 
noting that all stakeholders, including large investors, have made 
significant concessions to reach the current plan.  Crawford 
believes the plan will stabilize the market, enabling some investors 
to sell their long-term notes and recoup some of their funds 
upfront.  The Crawford Committee is scheduled to meet with investors 
again to sell the plan on March 31, April 1, and April 2 in Toronto, 
Montreal, Edmonton, Calgary, and Vancouver.  If the retail investors 
do not back the long-term restructuring plan, Crawford said he fears 
the commercial paper will be sold in a fire sale, which could 
increase instability in Canada's financial sector (until now 
affected relatively little by U.S. market events) and thus  further 
disrupt global capital markets. 
 
¶7. (SBU) Comment:  Given Crawford's personal credentials as a 
heavyweight lawyer and former CEO, and his ability to negotiate the 
restructuring plan to this point, financial sector analysts are 
optimistic that he will be able to strike a deal with retail 
investors, and resuscitate the Canadian ABCP market.  The stability 
of Canadian capital markets depend on it.  If the deal - which would 
be the largest of its kind that does not involve a government 
bailout - goes through, the market could resume trading in the 
summer.  Financial sector insiders expect the non-bank ABCP market 
collapse eventually will prompt financial sector regulatory reform 
in Canada, but not until the dust settles on a fully restructured 
and functioning ABCP market.  One outcome of the ABCP market 
experience may be to give more thrust to the federal government's 
goal of creating a single national securities regulator.  End 
Comment. 
 
NAY