Announcement from ROC Pref II Corp., ROC Pref III Corp., and Connor, Clark & Lunn ROC Pref Corp.



    (RPA.PR.A, RPB.PR.A, RPQ.PR.A)

    TORONTO, Sept. 9 /CNW/ - On Sunday the US federal government announced
its intention to place government sponsored entities ("GSEs") Fannie Mae and
Freddie Mac (both rated AAA by Standard & Poor's) under conservatorship. The
government's actions, taken through the Federal Housing Finance Agency, the US
Department of the Treasury and the Federal Reserve, are intended to reduce
risk in the mortgage financing market.
    The use of a conservatorship as the vehicle by which to carry out the
changes, however, has potential consequences for ROC Pref II Corp.("ROC II"),
ROC Pref III Corp. ("ROC III"), and Connor, Clark & Lunn ROC Pref Corp. ("ROC
IV" and collectively "the ROCs") which have exposure to both Fannie Mae and
Freddie Mac in their respective Reference Portfolios. As discussed in greater
detail below, based on current information, we believe the impact on ROC II
and ROC IV will be minimal. The impact on ROC III, however, could be more
significant.
    In the credit default swap ("CDS") market, contracts are written using
standardized language as set out by the International Swaps and Derivatives
Association (ISDA). The ROCs apply this standard set of terms. Under ISDA
terms, conservatorship is included as part of the definition of a credit event
and therefore the government's actions could be construed as a credit event
that would impact the ROCs. Most large investment banks who are ISDA members
have disclosed to ISDA that they interpret the conservatorship to be a credit
event under the ISDA definitions. ISDA has announced that, after consultation
with industry participants, it will launch a protocol to facilitate settlement
of credit derivative trades involving Fannie Mae and Freddie Mac. ISDA will
publish further details in due course.
    The net economic impact of the government's actions was to decrease the
risk of default on the senior debt of the GSEs and there are some differences
between this circumstance and the actions of a typical conservatorship,
therefore we believe that there will be substantial on-going discussions
regarding the impact of these actions on the CDS market in general and the
fixed recovery rate swaps in particular. As of the time of this release the
ROCs have not received a credit event notice.
    If the dealers who issued the credit linked notes pertaining to the ROCs
interpret this event as a credit event, ROC II and ROC IV would likely
experience minimal impact given the recovery rate is expected to be in the 95%
to 100% range. ROC III however, has a fixed recovery rate feature which, in
the case of a typical credit event, would limit the recovery rate to the fixed
level of 40%. Fixed recovery rates were a feature that was commonly used in
the CDS marketplace at the time that ROC III shares were issued. The rating
agencies preferred the additional level of certainty that fixed recovery rate
swaps provided investors by taking away the risk of very low recovery levels.
    The senior bonds of the GSEs and their credit default swaps have always
been assumed to have the implicit backing of the US Treasury and now that
backing has been made explicit. In recent months the CDS have been trading in
a range of 37 to 75 basis points. Today they are trading at 35 basis points.
As a point of comparison, another AAA-rated company, Berkshire Hathaway is
trading at 100 basis points.

    
    -------------------------------------------------------------------------
    Reference Portfolio Exposure            Fannie Mae         Freddie Mac
    -------------------------------------------------------------------------
    ROC Pref II Corp.                           Yes                 No
    -------------------------------------------------------------------------
    ROC Pref III Corp.                          Yes                Yes
    -------------------------------------------------------------------------
    Connor, Clark & Lunn ROC Pref Corp.         Yes                Yes
    -------------------------------------------------------------------------
    

    We will keep you informed as we learn more information.
    ROC Pref II Corp.'s Preferred Shares pay a fixed quarterly coupon of
4.65% on their $25.00 principal value and will mature on December 31, 2009.
ROC II has the ability to sustain approximately 7.5 defaults, assuming an
estimated recovery rate of 40%. The Preferred Shares are rated P-1 (low) by
Standard & Poor's ("S&P") and are listed for trading on the Toronto Stock
Exchange under the symbol RPA.PR.A.
    ROC Pref III Corp.'s Preferred Shares pay a fixed quarterly coupon of
4.40% on their $25.00 principal value and will mature on March 22, 2012. ROC
III has the ability to sustain approximately 7.3 defaults, assuming a fixed
recovery rate of 40%. The Preferred Shares are rated P-2 (low) by S&P and are
listed for trading on the Toronto Stock Exchange under the symbol RPB.PR.A.
    Connor, Clark & Lunn ROC Pref Corp.'s Preferred Shares pay a fixed
quarterly coupon of 4.70% on their $25.00 principal value and will mature on
June 30, 2011. ROC IV has the ability to sustain approximately 5.9 defaults,
assuming an estimated recovery rate of 40%. The Preferred Shares are rated P-2
(high) by S&P and are listed for trading on the Toronto Stock Exchange under
the symbol RPB.PR.A.





For further information:

For further information: please visit www.cclcapitalmarkets.com or
contact: Neil Murdoch, President & CEO, Connor, Clark & Lunn Capital Markets
Inc., (416) 364-2839, nmurdoch@cclgroup.com; Darren Cabral, Vice-President,
Connor, Clark & Lunn Capital Markets Inc., (416) 214-6182 or 1-888-276-2258,
dcabral@cclgroup.com

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Connor, Clark & Lunn Capital Markets Inc.

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ROC PREF II CORP.

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