National Bank Completes Program Aimed at Supporting Commercial Clients
In anticipation of the eventual approval of the proposal made by the Pan-Canadian Investors Committee of Third Party Structured Asset-Backed Commercial Paper (Crawford Committee), National Bank of Canada is completing its program aimed at supporting clients in the non-bank asset-backed commercial paper (ABCP) file.
This latest activity aims to offer commercial and corporate clients of the Bank improved credit facilities for their liquidity needs from now until the maturity of long-term notes resulting from the restructuring of ABCP.
Last August, the Bank protected its retail clients from risks associated with these securities by acquiring all non-bank ABCP they held. This measure also covered all companies holding $2 million or less in ABCP and that were not considered accredited investors under securities laws. This initiative, representing an investment of $2.1 billion by the Bank, was well received.
At the same time, the Bank committed to working for and with all other participants in order to protect the value of their investments and to find solutions to the liquidity problems facing these vehicles.
To this end, in addition to playing an active role on the Crawford Committee, the Bank as made to date $670 million in credit facilities available to its commercial and corporate clients holding ABCP to allow them to access the value of their investment. As at February 18, 2008, business clients had made use of $119 million of these facilities, which were offered under regular banking terms.
As the Crawford Committee will soon be putting its ABCP restructuring proposal to a vote, National Bank plans to improve its measures for supporting approximately 100 commercial and corporate clients that hold ABCP. In total, the Bank has more than 140,000 commercial and corporate clients.
These measures do not cover such as financial institutions, financial intermediaries or government organizations, which can more easily deal with the transformation of ABCP into long-term notes.
The Bank plans to extend the terms of its credit facilities. If the Crawford Committee’s proposal is adopted, the credit facilities of National Bank will be made available to its business clients for a period of two years, with the possibility of being extended each year at the discretion of the Bank. These credit facilities will cover up to 75% of the value of the investment. For clients, the cost of these credit facilities will, for the most part, be offset by the interest received on long-term notes. These credit facilities are always issued under regular banking terms, with the Bank maintaining full recourse in the event of default.
For about 20% of ABCP with a higher level of risk according to the evaluation by the Crawford Committee, the Bank will also offer renewable credit facilities for a two-year period that can cover up to 75% of the value of the notes but, in this case, the Bank waives all recourse other than the notes given as collateral. Clients may benefit from any increase in the value of these notes in excess of 75% of their par value. Companies must maintain their normal banking relationship with the Bank during the period of the credit facility. This offer could represent up to $246 million in credit facilities if accepted by all clients.
The Bank estimates that the additional cost for completing its program aimed at commercial and corporate clients could be offset by interest revenue on the ABCP it holds or by eventually recovering part of the charge already taken on ABCP.
Other measures taken
In addition to these credit facilities for commercial and corporate clients, the Bank played an active role in the work of the Crawford Committee to come to an ordered settlement of this file and to preserve the value of the investments.
In order to support the efforts of the proposed restructuring plan, the Bank previously announced its commitment to contribute approximately $815 million to the liquidity facilities provided by financial institutions as well as Canadian investors. These liquidity facilities are an integral part of the general restructuring plan for the ABCP market and aim to reduce the risk that those vehicles are not able to support margin calls if future circumstances were to warrant them.
About National Bank of Canada
National Bank of Canada is an integrated group which provides comprehensive financial services to consumers, small and medium-sized enterprises and large corporations in its core market, while offering specialized services to its clients elsewhere in the world. The National Bank offers a full array of banking services, including retail, corporate and investment banking. It is an active player on international capital markets and, through its subsidiaries, is involved in securities brokerage, insurance and wealth management as well as mutual fund and retirement plan management. National Bank has more than $120 billion in assets and, together with its subsidiaries, employs 16,856 people. The Bank’s securities are listed on the Toronto Stock Exchange (NA:TSX). For more information, visit the Bank’s website at www.nbc.ca.
Information (The telephone number provided below is for the exclusive use of journalists and other media representatives.):
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National Bank of Canada