CAPITAL MARKETS REPORTER
DundeeWealth Inc. has sold the most valuable chunk of its asset-backed commercial paper (ABCP) for about $140-million, turning one of the final pages on the ABCP saga for the firm, which was forced to sell its banking business and a big stake in the company to Bank of Nova Scotia after the paper froze.
DundeeWealth was profoundly changed by the ABCP mess, which began in August, 2007, when the market for the paper seized up.
The company, like many unsuspecting investors large and small, was caught in the lurch by the unprecedented and unexpected seizing of the market for more than $30-billion of ABCP. It purchased the paper, which was considered an ultrasafe short-term investment, as a way to generate income to pay interest to depositors at its Dundee Bank unit.
When the paper froze and couldn't be sold, chief executive officer David Goodman needed a solution. DundeeWealth purchased all the ABCP from the bank and found a backer in Scotiabank, which bought the Dundee Bank unit and an 18-per-cent stake in DundeeWealth for $608-million. Since then, the company has focused on its main business of providing money management advice and products.
"The business is today returned from that mess to be debt free and completely focused on growth in the asset management sector," spokesman Robert Pattillo said.
Many smaller investors who had purchased ABCP for personal accounts have been bought out at full value by brokers, but bigger corporate buyers like DundeeWealth had to fend for themselves.
In early 2009, at the close of the marathon ABCP restructuring led by Purdy Crawford, DundeeWealth and other large holders received new paper in place of the frozen ABCP. They can sell it for whatever the market pays or hold the paper until it matures in six years and hope to be repaid in full.
The market for ABCP has been steadily strengthening, with many trades recently taking place for more than 50 cents on the dollar, enabling companies and investors who want to get out to do so. Hedge funds have been the main purchasers of restructured ABCP in recent months. With potential double-digit returns hard to come by in traditional stocks and bonds, hedge funds have been digging into more exotic asset classes like ABCP.
DundeeWealth said it raised $139,511,186 by selling all of the top two classes of notes it received in the ABCP restructuring. It didn't say what price the individual notes went for and didn't know who the buyer was, but believes it can use the money to generate a higher rate of return than leaving it tied up in ABCP.