The Caisse de dépôt et placement du Québec comments on the restructuring of Canadian Third-Party ABCP

The Caisse de dépôt et placement du Québec stated today that it was pleased with the submission of the final documents to implement the plan to restructure third-party asset-backed commercial paper (ABCP), which began in August 2007 and now includes many improvements over the initial arrangement.

“The closing of the restructuring plan is very much in sight. This outcome reflects the spirit of co-operation that prevailed between all the parties in order to arrive at a result that takes into account the severe deterioration of the markets in the fall of 2008. Credit for this success, which is without precedent in Canada’s financial history, is due above all to Purdy Crawford, Chairman of the Pan-Canadian Committee, whose leadership enabled all the parties to reach an equitable solution,” stated Fernand Perreault, the Caisse’s Acting President and Chief Executive Officer.

“The involvement and support of the governments of Québec and Canada in particular were vital for the conclusion of this agreement. I should also like to point out the excellent effort by the Caisse teams, which made a remarkable contribution to the work of the Pan-Canadian Committee,” Mr. Perreault added.

The Caisse reiterated that the restructuring makes it possible to avoid a disorderly liquidation of the ABCP, which would have involved substantial losses for all holders, and involves the issuance of new notes with maturities corresponding to those of the underlying assets. 

The new agreement provides for an 18-month moratorium after the closing, during which no calls for collateral security may take place; the agreement also provides for C$4.45 billion of further support in the event of additional margin calls. The moratorium, combined with wider spread loss triggers that take into account the current context, reduces the likelihood of such margin calls.

In the months following the closing of the transaction, scheduled for January 15, 2009, the Caisse expects to receive more than $1 billion of interest and capital accumulated since August 17, 2007.

As stated in December 2007, the Caisse could be required to finance margin calls associated with the assets underlying the new notes issued under the restructuring plan and supported by credit facilities. The Caisse has undertaken to finance up to $6.1 billion of such margin calls. Under the agreement, margin calls may not take place during the 18 months following the signature of the agreement. After the moratorium, an additional margin call may occur only if two spread loss triggers are reached and if the collateral already available to the asset providers is insufficient.

The Caisse reiterated that it will hold $10.58 billion in MAV 1 and $1.38 billion in MAV 3. 

For some time, the fair value of the new notes will most likely be less than their face value, primarily because of the current financial crisis. In all likelihood, the Caisse will have to take an additional provision (an unrealized loss) as at December 31, 2008, to reflect such factors as the impact that the considerable increase in credit spreads since December 31, 2007, has had on the fair value of the ABCP. The fair value of the notes as at December 31, 2008, will be established according to a rigorous process and audited by the Caisse’s external auditor.

Lastly, the Caisse stated that it had sufficient liquidity to respect all its undertakings to depositors and business partners, including its obligations under the ABCP restructuring plan. It also pointed out, with respect to depositors’ operations, that the deposits it receives will continue to exceed depositors’ withdrawals for several years.

About the Caisse de dépôt et placement du Québec
The Caisse de dépôt et placement du Québec is a financial institution that manages funds primarily for public and private pension and insurance plans. As at December 31, 2007, it held $155.4 billion of net assets. One of the leading institutional fund managers in Canada, the Caisse invests in the main financial markets as well as in private equity and real estate. For more information: www.cdpq.com.