Tweet
useful background info on what's happening with abcp [asset backed commercial paper], which turns up in money market funds.
http://www.ft.com/cms/s/8eebf016-48f...0779fd2ac.html
http://www.ft.com/cms/s/8eebf016-48f...0779fd2ac.html
-
-
abcp issuer likely to default
abcp issuer likely to default
http://www.bloomberg.com/apps/news?p...lAk&refer=home
Coventree Says Lenders Balking at Emergency Funding (Update2)
By Sean B. Pasternak and Doug Alexander
Aug. 14 (Bloomberg) -- Coventree Inc., the Canadian firm that failed to sell asset-backed commercial paper because of a credit crunch, said some lenders balked at providing emergency funding for C$700 million ($661 million) of maturing debt.
Coventree, the largest non-bank issuer of commercial paper in Canada, requested funding because it was unable to refinance debt that matured yesterday. Coventree's funds are among 17 asset-backed commercial paper issuers in Canada seeking emergency funding, said rating company DBRS.
``Certain liquidity providers have advanced funding, some have disagreed that they have an obligation to fund, some are in discussions with the company, and some have not responded,'' the Toronto-based company said in a Canada NewsWire release today.
Shares in Coventree plunged as much as 63 percent, dragging Canadian bank stocks lower, on concern that some its C$16 billion in funds will be forced to default if they can't get financing. A slump in U.S. subprime mortgages has prompted banks to restrict lending, forcing central banks to inject money into financial markets.
Coventree is one of the first companies to delay payments on asset-backed commercial paper in the U.S. and Canada in the 12 years since the debt was created. The firm yesterday extended maturities on C$250 million of debt.
More Issuers
``Failure to receive funding in a timely manner through the placement of ABCP or funding under the liquidity facilities may result in the event of default,'' Toronto-based DBRS said in a note today.
Separately, Global Diversified Investment Grade Income Trust said in a statement today that one of its funds, MMAI-I Trust, failed to roll over its commercial paper that matured yesterday, and that Deutsche Bank AG declined to provide emergency funding.
Coventree didn't name its ``liquidity providers.'' Craig Armitage, an outside spokesman for Coventree, didn't return a phone call today seeking comment.
The company's commercial paper funds held about 41 percent of assets in corporate loans and bonds at the end of 2006. About 22 percent of holdings were backed by residential mortgages and 16 percent in commercial mortgages, according to Coventree's annual report. The firm said today that less than 4 percent is linked to the U.S. subprime mortgage market. The company says it has a 13 percent market share for asset-backed commercial paper in Canada, with the largest banks holding about 64 percent.
Bank of Montreal and Royal Bank of Canada are the largest providers of ``disruption funding'' for asset-backed commercial paper in Canada, Genuity Capital Markets analysts Mario Mendonca wrote today in a note to investors. He estimates the asset-backed commercial paper market, with maturities of up to a year, is worth about C$120 billion.
Bank Funding
DBRS said that lenders are forced to finance the funds only under certain conditions, such as whether this credit crunch is considered a ``market disruption.''
``It is conceivable that the banks could argue that the current circumstances are more than a market disruption and elect not to provide the liquidity,'' Mendonca said.
Bank of Montreal, Canada's fourth-largest bank by assets, has C$42.7 billion in funding available for asset-backed commercial paper, while Royal Bank, the country's largest lender, has about C$35.1 billion, Mendonca wrote.
Royal Bank is ``an insignificant player in the non-bank administered asset-backed commercial paper market,'' spokeswoman Katherine Gay said today in an interview. The non-bank market includes issuers such as Coventree. Bank of Montreal spokesman Ralph Marranca declined to comment.
Bank of Montreal shares fell C$1.11, or 1.8 percent, to C$61.12 at 12:19 p.m. on the Toronto Stock Exchange. Royal Bank fell 55 cents to C$52.24. National Bank of Canada, which hired Coventree to administer some of its commercial paper funds, declined C$1.76, or 3.3 percent, to C$55.04.
Shares of Coventree fell C$4.85, or 57 percent, to C$3.65 after declining 35 percent yesterday. Coventree, formed in 1998, went public in November at C$10.75 a share, in a sale led by banks including Royal Bank and Sprott Securities Inc. Caisse de Depot et Placement du Quebec, Canada's biggest pension fund manager, held 10 percent of the company after the IPO, according to the sale documents.
Comment