Asset Backed Commercial Paper (ABCP)

  • Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

    Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

  • Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

    Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

  • Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

    Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

  • Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

    Communications played a critical role in creating consensus to resolve Canada’s Asset Backed Commercial Paper crisis in 2007-08.

Canada's ABCP Crisis

Overview

In August 2007, NATIONAL was retained as communications counsel to the Pan-Canadian Committee for Third-Party Structured ABCP (the “Crawford Committee”), that successfully restructured the market for a form of short term debt called Asset Backed Commercial Paper (ABCP).

In August of that year, following the collapse of the mortgage market in the U.S., investors began to more closely examine the underlying assets in instruments such as ABCP, which bundled various forms of debt (such as mortgages, credit card loans, etc.) into marketable securities. As investor confidence failed, new buyers could not be found to purchase these securities as they matured.

With an illiquid market, the fallout over ABCP risked spreading out of control, with the attendant risk of putting Canada’s credit markets at risk.

Creative Solution

With $32 billion of investments in non-bank ABCP by financial institutions, companies and individuals, and a further $200-billion of leveraged derivatives at risk of unravelling, ABCP became the largest, most complex multi-party restructuring in Canadian history.

The Canadian approach to this crisis was unique. Principal investors imposed a voluntary “freeze” in the market and created a “Pan-Canadian Committee” to find an optimum solution. NATIONAL worked with the Committee through nearly 15 months of negotiations, public communications, stakeholder meetings and media attention. Through a negotiated consensus, stakeholders agreed to a settlement under the Companies’ Creditors Arrangement Act (CCAA), which saw the issuance of new securities backed by ratings agencies.

Objectives

  • Achieve buy-in from all parties–investors, sponsors, asset providers, liquidity providers, trustees and banks–to a voluntary compromise resolution that would see investors receive new notes that, if held to maturity, would return at least principal;
  • Maintain the confidence of the financial community that progress was being made;
  • Pre-empt hasty action by note holders or bank counterparties that would cause a collapse in the market.

Deliverables

  • Strategic counsel to Committee on emerging issues;
  • Regular news releases (in English and French);
  • Media and investor conferences to update the market
  • Input on all messaging and legal and financial strategies and options;
  • Developed and placed Op-Ed pieces, drafted speaking remarks, and arranged editorial board briefings;
  • Created “plain language” 10-page summary of 400-page legal information document, to facilitate consumer understanding of plan;
  • Coordinated five-city information sessions across Canada to present plan to noteholders;
  • Managed litigation communications surrounding challenges before Superior Court, Court of Appeal and Supreme Court;
  • In association with Court monitor, organized noteholder vote meeting;
  • Identified and vetted media and speaking opportunities for committee chair and key players;
  • Provided timely response to emerging events and legal challenges (where action was required within the hour)
  • Served as media spokesperson on this issue, as required.

Results

Noteholders voted overwhelmingly in favour of the plan (>96%). Superior Court of Ontario sanctioned the Plan, which also withstood a challenge to the Court of Appeal. Through compromise and consensus, Canada avoided the economic meltdown that would likely have resulted had a solution not been achieved. By 2011, the value of the new notes had risen sharply as confidence in these financial instruments grew.