August 14, 2007 (LPAC)--Coventree Incorporated, a Canadian finance company has bombed out on its "asset-backed commercial paper" (ABCP), and failed to sell C$250 million (US$238 million) worth ABCP to replace maturing debt because of the subprime crisis. The company extended maturities by a year on the ABCP and asked for emergency funding for another C$700 million of debt. The company holds no less than C$16 billion in ABCP.
Coventree is not the only company reporting a delay in payments. European banking sources, confirmed by the Financial Times on 13 August, warned EIR that ABCP is one of the most dangerous areas in the financial landscape, and to expect very unpleasant surprises, including the possibility of the collapse of a major commercial bank. ABCP is commercial paper that includes almost anything that normally generates income, including home mortgages, credit card receivables, auto loans and leases, etc and accounts for $1.14 trillion dollars of commercial paper.
But, it must be understood that ABCP, unlike corporate bonds, does not rest on any faith or credit of the corporation which is borrowing (i.e., selling the paper) but entirely on the valuation of some forms of debt assets -- which are now, like the mortgage backed securities (mbs) linked to sub-prime mortgages--turning out to be valueless in many cases. Yesterday, August 13th , was a deadline for selling or rolling over a large portion of this debt. Another portion will come due tomorrow, 15 August. "Problems that initially seemed isolated to a few U.S. subprime mortgage lenders have led to broader concerns relating to debt capital markets general," Coventree said in a statement, reported in today's Bloomberg.
Coventree was floated on the stock market only last November. Shares fell by 50% yesterday from a market capitalization of C$215.9million to C$141.4 million.
Coventree is in reality only a "special purpose vehicle" a conduit of other institutions, including commercial banks, the originators. Among the banks that are listed on their website as "dealer partners" are some of the banks which have announced serious losses related to the subprime crisis including BNP Paribas, CIBC World Markets, HSBC Bank Canada, Deutsche Bank Securities, National Bank Financial, and Laurentian Bank of Canada BNP.
