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(October 16, 2007) The Montreal Accord, signed in August to prop up the asset-backed commercial paper market, has been extended to December 14. Under the agreement, key holders of the affected instruments will not demand access to their capital.

With this extension, the stakeholders involved in the accord can continue their efforts to restructure their third-party ABCP liabilities.

“The extension of our standstill arrangement reflects the high level of co-operation that we have achieved with all parties, including the bank counterparties, as we continue to work together towards a solution which will maximize the value of third-party ABCP,” says Purdy Crawford, chairman of the investors’ committee.

Crawford says the group intends to provide investors with “definitive restructuring proposals for each affected conduit prior to the expiry of our extended standstill.”

In extending the accord, the parties involved have agreed not to enforce default rights; asset providers will not pursue any existing margin calls; and the investors committee will encourage third-party ABCP conduits to not pursue any existing liquidity calls during the extension time.

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Investors raise questions around cash equivalents

(October 16, 2007) The recent trouble surrounding asset-backed commercial paper has some investors asking questions about other “cash equivalent” options.

On Tuesday, Standard & Poor’s released a commentary about accounting issues surrounding ABCP and other cash equivalent products. The report says that products like Canadian non-bank ABCP must be highly liquid and have a stable valuation to be considered cash equivalents on a balance sheet.

If they’re not compatible with these two requirements, they should be reclassified out of the category or be written down. The problem, says S&P, is that these types of accounting changes could have implications beyond just alterations in reported numbers.

“A significant reclassification or write-down, like any other significant accounting change, could have indirect implications to a company’s credit rating,” says Kevin Hibbert, Canadian director, financial reporting analysis. “In this specific instance, its effect will depend largely on the materiality of the reclassification or write-down and what it says about the company’s current and future liquidity prospects relative to our original expectations.”

The report says it’s difficult to determine just how a reclassification or write-down would affect a company, as most businesses just provide a general description of their cash equivalent holdings and don’t provide specific information about individual dollar amounts held in a security or about what securities are held.

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Standard & Poor’s unveils new Canadian index

(October 16, 2007) Standard & Poor’s launched a new Canadian index on Tuesday to track companies that have consistently increased dividends for the last seven years.

The S&P/TSX Canadian Dividend Aristocrats Index is designed for investors on the search for yield. The listed companies have more sustainable payout ratios and have a better return on equity and higher earnings and dividend growth than the rest of the Canadian market.

“Dividends have contributed nearly a third of the market’s total equity return of the S&P/TSX Composite since 1956, while capital appreciation has contributed two-thirds,” says Jasmit Bhandal, director of business development at Standard & Poor’s Canadian Index Services. “Stable and increasing dividends are traditionally used by corporate managers to signal their confidence in their company’s prospects. Investors consider long dividend track records a sign of corporate maturity, growth, and strength.”

The new index is weighted by indicated yield. It incorporates concentration limits to prevent any stock from being more than 8% of the index weight at each quarterly rebalancing. The companies on the index are re-weighted every quarter, while the Dividend Aristocrats universe will be reviewed every December.

(10/16/07)