Transat: credit crunch now hitting non-financials

I have been following a story for a few months in the Canadian Press on Transat, a tour operator. I hadn’t reported on it until now because they were just bailed out. It seems they have gotten tangled in the ABCP (Asset-Backed Commercial Paper) market. The market has become frozen and they are having cash flow difficulties.

The latest from the Globe & Mail is that they have been bailed out by the National Bank of Canada. This story does not seem to be getting much press, but given that they are a non-American non-Financial, I think it’s pretty big news that they are getting ensnared in this web as they have.

Collateral damage is working its way through the system. Could there be more stories like this to come?

Transat A.T. Inc. has reached a new financing deal with National Bank of Canada in connection with the $143.5-million in cash the tour operator has locked up in the frozen market for third-party asset-backed commercial paper.

The bank has agreed to provide the Montreal company with three-year credit facilities for up to $107.6-million or 75 per cent of the funds it has tied up in ABCP, renewable as many as four times, at the bank’s discretion, Transat said Monday.

In return, Transat has agreed to drop its appeal of a recent court judgment that approved a restructuring plan that will see the $32-billion in ABCP converted into notes that will mature in nine years.

Ontario Superior Court Judge Colin Campbell approved the plan June 5, giving the banks and brokerages that sold the paper immunity from lawsuits except in specific cases where fraud is alleged to have been involved.

Sources
National, Transat in ABCP deal, Globe & Mail, 23 Jun 2008
Transat reaches ABCP deal with National Bank, National Post, 23 Jun 2008

Previous stories
Transat profit trimmed by ABCP writedown, Reuters, 12 Jun 2008
Transat results rattled by competition, ABCP exposure, Globe & Mail, 12 Mar 2008