Investorsstuck with frozen asset-backed commercial paper could begin to seetheir holdings thawed not long after an appeal court ruling that'sexpected in a matter of days.
The committee overseeing the $32-billion restructuring of the frozenpaper is planning to move quickly to close the deal should the OntarioCourt of Appeal dismiss a challenge to the fairness of the proposal,rather than wait for any further appeals to run their course, said twopeople familiar with the strategy.
Lawyers expect the appeal court will decide on the challenge by a group of corporations by the middle of next week.
The committee doesn't want to wait on a possible appeal to theSupreme Court of Canada by the challengers, the people said. That wouldforce the challengers, who include companies ranging from small minerRedcorp Ventures Ltd. to airport manager Aéroports de Montreal Inc., totry to stop the closing of the deal with an injunction.
The plan as it stands calls for swapping the seized-up paper, whichinvestors have been saddled with since last August, for new notes thatshould trade freely, albeit at a discount to their face value. However,the challengers are upset because the plan grants a measure of legalimmunity to players in the ABCP business, which the appellants say isunfair and unlawful.
After a lower court approved the plan in early June, the committeeheld off on closing the transaction because of the pending appeal.However, with the courtroom drama dragging on, the strategy now is totry to get the swap done without further delay. That would be a relieffor investors who bought the paper last year, thinking it was ashort-term place to park cash, only to find themselves mired in arestructuring that has locked up their money for 11 months.
"The idea is to move to hit the switch and start paying," said one person familiar with the situation.
The legal strategy is based on the view that an appeal by thecorporate challengers to the Supreme Court would be a long shot if theplan is upheld at both the lower and appeals court levels.
Much will depend on the wording of the appeal court's ruling, nomatter which way it goes. If it's a split decision by the three-judgepanel, that would likely open the door to a Supreme Court bid.
"There are still enough challengers that I think if their appeal isthrown out by the Court of Appeal, I think some of them will still tryto get leave to appeal to go to the Supreme Court," said Colin Kilgour,a consultant who has advised many corporations on their ABCP holdings.
The corporate challengers have yet to decide whether they will pushtheir case to the Supreme Court if need be, said one lawyer working ontheir behalf who asked not to be identified given that the appealscourt has yet to make a decision.
The Court of Appeal hasn't given a timeline for its ruling, but maywant to hand down a judgment before the middle of next week, when astandstill agreement that has kept the ABCP restructuring fromimploding expires. The judges asked about the standstill duringhearings on the matter, which some in the room took as a signal thatthe justices are cognizant of the time constraints.
The banks that are backing the restructuring in return for legalimmunity have been voluntarily extending the standstill, under whichthey have agreed not to halt the restructuring and force a liquidationof the assets backing the paper. But there is no guarantee they willcontinue to do so indefinitely.