Post by jeffolie on Aug 13, 2007 16:01:34 GMT -6
Coventree Fails to Sell Asset-Backed Commercial Paper (Update3)
By Sean B. Pasternak and Shannon Harrington
Aug. 13 (Bloomberg) -- Coventree Inc., the Canadian finance company that went public in November, failed to sell asset-backed commercial paper to replace maturing debt because of the credit crunch caused by U.S. subprime mortgage losses.
The shares tumbled 35 percent after the company extended maturities on C$250 million ($238 million) of commercial paper and sought emergency funding for another C$700 million of debt. Toronto-based Coventree's units have about C$16 billion of asset- backed commercial paper outstanding.
``Problems that initially seemed isolated to a few U.S. subprime mortgage lenders have led to broader concerns relating to debt capital markets generally,'' including the Canadian asset-backed commercial paper market, Coventree said in a statement today.
Coventree is among 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 company's inability to find buyers for its short-term debt shows the extent to which the slump in subprime mortgages has spread to other assets.
``There's so much CP out there, and if one part of the market locks up, it tends to be contagious,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York.
In the U.S., asset-backed commercial paper, which comprises about $1.15 trillion of the $2.16 trillion in commercial paper outstanding, is bought by investors such as money market funds. The cash allows entities such as those owned by Coventree to buy mortgages, bonds, credit card and trade receivables as well as car loans.
Extendible Notes
In the U.S., extendible notes constitute about $172.5 billion in debt outstanding, according to Moody's. About $60 billion of that is backed by mortgages or securities supported by mortgages, according to a report last week from New York-based Bears Stearns Co. The notes allow the issuer to delay repayment for as long as 397 days, the maximum U.S. money market funds may hold, and may give Coventree more time to find a way to repay its debt.
Shares of Coventree fell C$4.48 to C$8.50 after earlier being halted on the Toronto Stock Exchange. The firm's market capitalization tumbled to C$141.4 million from C$215.9 million yesterday.
Coventree's announcement heightened worries that rising defaults on subprime loans are infecting securities across the credit markets, including asset-backed commercial paper, which has been seen as among the safest of debt.
Contracts on the CDX North America Investment-Grade Index, a benchmark for the cost of protecting investment-grade bonds, rose 6.5 basis points to 76.5 basis points after earlier dropping as low as 64, according to broker Phoenix Partners Group in New York. An increase indicates worsening perceptions of credit quality.
Luminent, Aladdin
Coventree's decline pushed other Canadian finance stocks lower. Bank of Montreal, the fourth-biggest lender, fell C$2.34, or 3.6 percent, to C$62.23, the biggest decline in two years. Royal Bank of Canada, the largest bank, fell C$1, or 1.9 percent, to C$52.75.
Units of American Home Mortgage Investment Corp., the residential-mortgage lender that filed for bankruptcy, Luminent Mortgage Capital Inc. and Aladdin Capital Management LLC, last week exercised options allowing them to delay repaying the debt, according to Moody's Investors Service.
Germany's state-owned KfW Group and banking associations this month agreed to cover as much as 3.5 billion euros ($4.8 billion) of potential losses at IKB Deutsche Industriebank AG, after the bank's Rhineland Funding faced similar difficulty in rolling over commercial paper.
Comet, Planet
Coventree's debt was issued by Coventree-sponsored entities including Apollo, Aurora, Comet, Gemini, Planet, Rocket, Slate, SIT III and SAT, the company said.
Coventree listed BNP Paribas, CIBC World Markets, HSBC Bank Canada, Deutsche Bank Securities, National Bank Financial, and Laurentian Bank of Canada as ``dealer partners'' on its Web site, saying they sold its commercial paper.
Some investors are reducing or eliminating their investments in the Canadian asset-backed commercial paper market, including ABCP issued by conduits, Coventree said in the statement.
Coventree, founded in 1998 by David Ellins, Geoff Cornish and Dean Tai, said it can't predict how long the ``market disruption'' will continue or what effect it will have on earnings. Tai is the firm's chief executive officer.
The company has other commercial paper maturing and may be forced to extend maturities on that debt too and draw more money from other sources, Coventree said.
`Little Incentive'
Coventree had revenue of C$217.1 million in the quarter ended March 31, and a net loss of C$115.1 million, or C$6.92 a share, according to its Web site.
For the fiscal year ended Sept. 30, Coventry had net income of C$57.8 million, or C$3.60 a share, compared with C$24.4 million, or C$1.58, a year earlier.
Craig Armitage, a spokesman for the public relations firm The Equicom Group Inc., declined to comment further.
``If a manager is extending due to the inability to issue new CP, there is little incentive for the traditionally low-risk tolerant CP purchasers to take risk on new paper from that issuer,'' Yelvington said. ``The risk-reward usually is not high enough.''
www.bloomberg.com/apps/news?pid=20601082&sid=aE1vxmCwxMy0&refer=canada
By Sean B. Pasternak and Shannon Harrington
Aug. 13 (Bloomberg) -- Coventree Inc., the Canadian finance company that went public in November, failed to sell asset-backed commercial paper to replace maturing debt because of the credit crunch caused by U.S. subprime mortgage losses.
The shares tumbled 35 percent after the company extended maturities on C$250 million ($238 million) of commercial paper and sought emergency funding for another C$700 million of debt. Toronto-based Coventree's units have about C$16 billion of asset- backed commercial paper outstanding.
``Problems that initially seemed isolated to a few U.S. subprime mortgage lenders have led to broader concerns relating to debt capital markets generally,'' including the Canadian asset-backed commercial paper market, Coventree said in a statement today.
Coventree is among 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 company's inability to find buyers for its short-term debt shows the extent to which the slump in subprime mortgages has spread to other assets.
``There's so much CP out there, and if one part of the market locks up, it tends to be contagious,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York.
In the U.S., asset-backed commercial paper, which comprises about $1.15 trillion of the $2.16 trillion in commercial paper outstanding, is bought by investors such as money market funds. The cash allows entities such as those owned by Coventree to buy mortgages, bonds, credit card and trade receivables as well as car loans.
Extendible Notes
In the U.S., extendible notes constitute about $172.5 billion in debt outstanding, according to Moody's. About $60 billion of that is backed by mortgages or securities supported by mortgages, according to a report last week from New York-based Bears Stearns Co. The notes allow the issuer to delay repayment for as long as 397 days, the maximum U.S. money market funds may hold, and may give Coventree more time to find a way to repay its debt.
Shares of Coventree fell C$4.48 to C$8.50 after earlier being halted on the Toronto Stock Exchange. The firm's market capitalization tumbled to C$141.4 million from C$215.9 million yesterday.
Coventree's announcement heightened worries that rising defaults on subprime loans are infecting securities across the credit markets, including asset-backed commercial paper, which has been seen as among the safest of debt.
Contracts on the CDX North America Investment-Grade Index, a benchmark for the cost of protecting investment-grade bonds, rose 6.5 basis points to 76.5 basis points after earlier dropping as low as 64, according to broker Phoenix Partners Group in New York. An increase indicates worsening perceptions of credit quality.
Luminent, Aladdin
Coventree's decline pushed other Canadian finance stocks lower. Bank of Montreal, the fourth-biggest lender, fell C$2.34, or 3.6 percent, to C$62.23, the biggest decline in two years. Royal Bank of Canada, the largest bank, fell C$1, or 1.9 percent, to C$52.75.
Units of American Home Mortgage Investment Corp., the residential-mortgage lender that filed for bankruptcy, Luminent Mortgage Capital Inc. and Aladdin Capital Management LLC, last week exercised options allowing them to delay repaying the debt, according to Moody's Investors Service.
Germany's state-owned KfW Group and banking associations this month agreed to cover as much as 3.5 billion euros ($4.8 billion) of potential losses at IKB Deutsche Industriebank AG, after the bank's Rhineland Funding faced similar difficulty in rolling over commercial paper.
Comet, Planet
Coventree's debt was issued by Coventree-sponsored entities including Apollo, Aurora, Comet, Gemini, Planet, Rocket, Slate, SIT III and SAT, the company said.
Coventree listed BNP Paribas, CIBC World Markets, HSBC Bank Canada, Deutsche Bank Securities, National Bank Financial, and Laurentian Bank of Canada as ``dealer partners'' on its Web site, saying they sold its commercial paper.
Some investors are reducing or eliminating their investments in the Canadian asset-backed commercial paper market, including ABCP issued by conduits, Coventree said in the statement.
Coventree, founded in 1998 by David Ellins, Geoff Cornish and Dean Tai, said it can't predict how long the ``market disruption'' will continue or what effect it will have on earnings. Tai is the firm's chief executive officer.
The company has other commercial paper maturing and may be forced to extend maturities on that debt too and draw more money from other sources, Coventree said.
`Little Incentive'
Coventree had revenue of C$217.1 million in the quarter ended March 31, and a net loss of C$115.1 million, or C$6.92 a share, according to its Web site.
For the fiscal year ended Sept. 30, Coventry had net income of C$57.8 million, or C$3.60 a share, compared with C$24.4 million, or C$1.58, a year earlier.
Craig Armitage, a spokesman for the public relations firm The Equicom Group Inc., declined to comment further.
``If a manager is extending due to the inability to issue new CP, there is little incentive for the traditionally low-risk tolerant CP purchasers to take risk on new paper from that issuer,'' Yelvington said. ``The risk-reward usually is not high enough.''
www.bloomberg.com/apps/news?pid=20601082&sid=aE1vxmCwxMy0&refer=canada