--Aaron Johnson

A consortium of banks, asset-providers and major investors affected by DBRS's recent actions on several Canadian asset-backed commercial paper issuers proposed a work out plan Thursday. The agreement would allow investors a 60-day period to exchange their ABCP holdings for long-term notes, followed by a five-month period where investors could not call asset providers to provide liquidity.

The Quebec Deposit and Investment Fund, part of the consortium, announced the proposal. "Should implementation of the proposal be successful," said Huston Loke, DBRS global head of structured finance, "it is likely investors looking to liquidate could do so at a time of their choosing, reducing likelihood of distressed prices or into a highly volatile credit environment."

According to the proposal, the term of the notes exchanged by investors would match the term of their assets within that particular ABCP issuance series. Additionally, asset providers would waive their right to enforce collateral calls and enforce default on the affected trusts. Asset providers have also indicated they would work to enhance the stability of any future collateral calls that might affect the underlying assets, Loke said.

The announcement comes at a time when the stability ABCP conduits has been called into question globally. UBS officials have even estimated that between $150-250 billion of asset-backed commercial paper conduit notes could migrate from the market to dealer repo lines, and $50-70 billion may be liquidated in the next month or two, essentially sticking liquidity providers with more paper on their balance sheets.