UPDATE 6-Canada money managers eye plan to ease ABCP crunch

(Adds new details from Coventree)

By Nicole Mordant and Janet Guttsman

VANCOUVER/TORONTO, Aug 16 (Reuters) - Ten financial institutions agreed to a plan on Thursday to try to ease a credit crunch in a segment of Canada's C$116 billion ($108 billion) asset-backed commercial paper (ABCP) market.

The players, which include Canada's biggest pension fund group and six international banks, said they were confident of support from investors holding at least two-thirds of Canada's third-party asset-backed commercial paper.

They expected others to sign on to the proposal to convert ABCP, which is short-term debt mostly with maturities of between 30 and 60 days, into longer-term floating rate notes, meaning issuers who have struggled to get funding will be off the hook for now.

Canada's finance minister, the Bank of Canada and several commercial paper trusts hit by the credit squeeze, including MMAI-I Trust, welcomed the plan.

Several third-party issuers of ABCP, traditionally regarded as a safe investment because it is backed by assets like home and car loans, have warned this week of trouble raising money to repay debt that is maturing. They had asked banks for funding lifelines, but several have refused.

"At the very least (the plan) will inject some much needed calm in the Canadian money market," said Doug Porter, deputy chief economist at BMO Capital Markets.

"More broadly, the market is still dealing with much bigger concerns beyond our borders and those aren't going away."

What started out as defaults in the risky U.S. subprime mortgage market has widened to concerns about debt markets in general, including Canada's ABCP market, in particular that segment operated by non-bank or third-party players, estimated to be worth C$40 billion.

The remaining C$75 billion segment of Canada's ABCP market is mostly operated by the country's big five banks and looks set to escape the credit squeeze.

Royal Bank of Canada (RY.TO), Canadian Imperial Bank of Commerce (CM.TO), Bank of Nova Scotia (BNS.TO) and Bank of Montreal (BMO.TO) said their exposure to ABCP products administered by third parties was not significant, while Toronto-Dominion Bank (TD.TO) said it had no holdings.

But Canadian investment dealer Canaccord Capital Inc. CCI.TO said it has C$32 million, or just over 9 percent, of its cash invested in third-party ABCP, which are experiencing "limited liquidity".

Canada's big banks pledged to keep funding their own bank-sponsored paper programs, and threw their weight behind the ABCP market stabilization plan.

Bank shares, which had spent most of the session under pressure, rose sharply. Bank of Montreal gained C$2.77, or 4.5 percent, to C$64.02.

The players who met on Thursday to hammer out a market solution are Caisse de depot et placement du Quebec, which manages Quebec's public sector pensions, ABN AMRO, Barclays Capital, Desjardins Group, Deutsche Bank, HSBC, PSP Investments, Merrill Lynch, National Bank of Canada and UBS, as well as rating agency DBRS.

Coventree Inc. COF.TO, the small Canadian structured finance house that first sounded the alarm on the ABCP crunch, said it supported the attempt to stabilize the market, subject to a full assessment of the impact of the proposal.

Coventree is the biggest player in the non-bank ABCP market with some C$16 billion in assets. It said on Thursday evening that it had again not placed commercial paper, and its conduits were among those whose ratings had been placed under review by rating agency DBRS.

The group's proposals include an agreement to roll third-party ABCP for a 60-day standstill period. Signatories will not pursue liquidity calls, or make new liquidity calls for 150 days after the standstill agreement.

In the longer term, the players propose converting all outstanding third-party ABCP into term floating-rate notes, which will pay interest monthly or quarterly. "Existing liquidity facilities will therefore not be necessary and will be canceled, and all outstanding liquidity calls will be revoked," the group said.

But others cautioned that the proposal was just postponing the problems until later when the notes fall due.

"That's just a stopgap," said Paul Gardner, principal, and portfolio manager for the equity and fixed income portfolios at Avenue Investment Management.

($1=$1.08 Canadian)

(Additional reporting by Scott Anderson in Toronto)

((Editing by Rob Wilson; Reuters Messaging: nicole.mordant.reuters.com@reuters.net; +604 664 7315)) Keywords: MONEYMARKETS CANADA/PROPOSAL

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nN16386010