...more resource stocks caught up in Coventree mess
Baffinland, Jura Energy reveal exposure to Coventree
JOHN PARTRIDGE
Friday, August 17, 2007
Two more small resource companies have emerged as owners of troubled finance firm Coventree Inc.'s debt offerings.
Junior miner Baffinland Iron Ore Mines Corp., revealed Friday morning that fully $43.8-million of the $45.9-million in cash and investments it has on its books is tied up in asset backed commercial paper (ABCP) issued by one of the special purpose trusts launched and operated by Toronto-based Coventree.
The paper, which Baffinland bought in five tranches in early July and early this month, has come due, but the company said it has not been able to cash it in because of Coventree's now well-publicized problems in finding other investors to buy the commercial paper and the refusal by a number of banks to honour agreements to provide back-stop financing.
The mining firm's statement came about 15 minutes after Jura Energy Corp., a small Calgary oil and gas explorer whose assets are mainly in Pakistan, disclosed $14.9-million of its $31.5-million cash holdings is sitting in Coventree paper on which it, too, has been unable to collect.
Coventree is the largest so-called “third party” – that is, not owned by a bank – conduit for ABCP in Canada, accounting for about $16-billion of this segment's approximately $40-billion in offerings.
Like other players in the market, the company creates ABCP by buying long-term assets such as mortgages, auto leases and credit card receivables from their originators and then repackaging and selling them as short-term debt that pays slightly above market rates, thus (in theory) allowing investors to maximize their cash holdings.
Jura noted that a group led by the Caisse de dépôt et placement du Québec announced a plan Thursday to try to end the funding crisis, part of a worldwide credit squeeze triggered by a meltdown in the U.S. subprime mortgage market, but converting the ABCP to longer term floating rate notes and putting a moratorium on redemptions.
In what is quickly becoming boilerplate phrasing as more of Coventree's customers fess up to holding its offerings, both Jura and Baffinland said they invested based on outside advice, that they are continuing to monitor the matter, and that the rest of their cash is safely invested elsewhere.
While Jura said it thinks it has enough cash available to fund operations during this “period of market uncertainty,” Baffinland sounded less confident. It said it had enough resources to meet its obligations “provided this market disruption is resolved in a timely manner. In the interim, the company is working diligently on a short-term solution.”
Several other Coventree paper purchasers, large and small, have already revealed their holdings, including investment dealer Canaccord Capital Inc., junior miner New Gold Inc., and Redcorp Ventures Ltd., a Vancouver mineral exploration and development company.
However, the bulk of the approximately $16-billion in offerings from Coventree, the largest “third party” – that is, not owned by a bank – conduit for ABCP in Canada, is held by institutional investors such as the Caisse and money-market mutual funds.
At the other end of the scale, meanwhile, both Whitemud Resources Inc. of Calgary, and Samex Mining Corp. of Vancouver, apparently seeking to quell speculation issued statements Friday morning saying they have no exposure to the ABCP market. |
