Toronto Stock Exchange Symbol: COF
TORONTO, Dec. 21 /CNW/ - Coventree Inc. (TSX: COF) ("Coventree" or the
"Company") today announced its financial results for the fiscal year ended
September 30, 2007. All amounts are reported in Canadian dollars.
Coventree's financial results for fiscal 2007 have been and continue to
be materially adversely affected by the disruption in the Canadian
asset-backed commercial paper ("ABCP") market that began on August 13, 2007
and still continues today (the "Market Disruption"). The impact of the Market
Disruption on the Company's current and future financial results is discussed
in detail in the fiscal 2007 Audited Consolidated Financial Statements and
accompanying Management's Discussion & Analysis of Financial Condition and
Results of Operations, which are available under the "Coventree Owners"
section of the Company's website at www.coventree.ca and have been filed on
SEDAR at www.sedar.com.
Results excluding VIEs (non-GAAP)
- Net loss of $7.4 million for year ended September 30, 2007 (vs.
net income of $30.1 million for the year ended September 30, 2006)
For the year ended September 30, 2007, Coventree's net loss excluding
VIEs was $7.4 million compared to net income excluding VIEs of $30.1 million
for the year ended September 30, 2006. This is primarily a result of (a)
unusual charges of $25.3 million taken before tax, relating to write-offs of
assets and restructuring charges that are a direct result of the Market
Disruption, (b) increased operating expenses incurred prior to the Market
Disruption in connection with the expansion of Coventree's business, and (c)
an $8.2 million unrealized loss due to the decrease in the year of the fair
value of the Company's investment in Xceed Mortgage Corporation ("Xceed").
Total revenue excluding VIEs for the year increased $0.5 million. While
financial and administrative agent fees increased approximately $7.4 million
due to the full year impact of deals completed in the prior year, this was
offset by a $2.8 million decrease in sale/termination of transaction fee
revenue and reduced income from investments, primarily sales of shares of
Xceed which provided $5.2 million of realized gains in the prior year.
Operating expenses increased $10.6 million due to increased employee related
and administrative expenses as the Company went public and increased its
headcount in order to pursue, prior to the Market Disruption, opportunities in
the Capital Markets and Administration businesses as well as increased legal
costs due to the Market Disruption and Nereus matters.
Results including VIEs (GAAP)
- Net income of $70.3 million for year ended September 30, 2007 (vs. net
income of $57.8 million for the year ended September 30, 2006)
Under generally accepted accounting principles ("GAAP"), the Company is
required to consolidate certain variable interest entities ("VIEs"), such as
the ABCP conduits sponsored by Coventree and a number of special purpose
vehicles. However, Coventree has no right to the VIEs' income or assets, and
the losses and liabilities of the VIEs (including the ABCP issued by
Coventree-sponsored conduits) are not the losses and liabilities of Coventree.
As a result, the Company believes that some GAAP financial measures,
including net income, do not accurately measure the performance of its
business. The Company uses certain non-GAAP financial measures, such as net
income or loss excluding VIEs as described above, that it believes are better
measures of its financial performance.
With the implementation of the new financial instruments accounting
standards on October 1, 2006, Coventree has measured all financial assets and
financial liabilities at fair value. As a result of the Market Disruption,
Coventree recorded the fair value of the VIEs' investments as approximately
$1.0 billion less than the book value of the investments. Coventree also wrote
down the fair value of the conduits' asset-backed limited recourse notes to
approximately $1.08 billion less than book value. The fair value of such notes
was estimated to equal the fair value of the conduits' net assets since, as a
result of the Montreal Accord, it is expected that substantially all of the
cash flows of the investments held by the relevant conduits will be the only
cash flows available to settle the cash flows of the respective notes. The
amount of this writedown of the note obligations is approximately 7%. This
writedown is not representative of the current fair market value of the ABCP
or other notes issued by an individual conduit since it is an average for all
series of notes determined across all Coventree-sponsored conduits and is as
at September 30, 2007.
The consolidated net income of the Company under GAAP was $70.3 million
for the year ended September 30, 2007, which is the combined result of the net
loss of $7.4 million of the Company and the net income of $77.7 million of the
VIEs. The net income of $77.7 million in the VIE business segment for the year
ended September 30, 2007 represents the net impact of recording the fair value
of the VIEs' investments at approximately $1.0 billion less than book value
and recording the fair value of the conduits' asset-backed limited recourse
notes at approximately $1.08 billion less than book value.
In response to the Market Disruption, the Company's board of directors
established a special committee ("Special Committee") to work with the
Company's management to explore and consider strategic options in order to
maximize value for the Company's shareholders. The Special Committee, which
has been assisted in its activities by legal and financial advisors, believes
that it is in the best interests of the Company, its various stakeholders and
the ABCP conduits sponsored by Coventree that the Company continue to
cooperate with and support the efforts of the Pan Canadian Investors Committee
(the "Investors Committee") to restructure the third party ABCP market.
The Special Committee has reviewed and considered the future viability of
each of the Company's three existing business units and has concluded that,
regardless of whether an Investor Committee restructuring proposal is
implemented or not, the Capital Markets business unit is no longer viable, and
that no further investments will be made under the Investments business unit.
The Capital Markets business unit has historically generated the vast majority
of the Company's revenue. The Special Committee is continuing to review
strategic options for the Administration business unit. Overall, strategic
options for the Company will be highly dependent upon the outcome of any
Investor Committee restructuring proposal and could involve, among other
things, a sale, merger or other transaction involving the Company or parts of
the Company, or potentially the orderly windup of the Company's operations.
The Company's revenue has been, and is expected to continue to be,
significantly reduced as result of the Market Disruption. As a result of the
implementation of certain cost reduction measures previously announced by the
Company, the Company's cost structure is presently aligned with its revenue.
However, Coventree's revenue is and will continue to be subject to fluctuation
and to certain risks and uncertainties as more fully described in the MD&A.
As a result, there can be no assurance that Coventree's revenue will continue
to be sufficient to cover the costs of continuing to support the restructuring
efforts of the Investors Committee and to perform its responsibilities as
administrator of the conduits sponsored by Coventree and others.
Prior to the Market Disruption, Coventree was a financial services
company that focuses on specialized niches. Coventree's principal business
operations are currently in two business segments - Coventree Capital & Admin
and Coventree Investments. Coventree Capital & Admin is comprised of two
businesses, the Capital Markets business and the Administration business.
Prior to the Market Disruption, the Capital Markets business specialized in
structured finance using securitization-based funding technology. The
Administration business provides services to ABCP trusts sponsored by the
Company and by third parties. Prior to the Market Disruption, Coventree
Investments made strategic investments in synergistic businesses.
For further information:
For further information: Craig Armitage, The Equicom Group Inc., Tel:
(416) 815-0700 x278, Email: firstname.lastname@example.org