Global Diversified Investment Grade Income Trust II - Status of the disengagement transaction



    MONTREAL, Sept. 26 /CNW Telbec/ - Further to the recent decision by the
Supreme Court of Canada on the proposed ABCP plan of arrangement, Global
Diversified Investment Grade Income Trust II ("Global DIGIT II") (TSX: GII.UN)
is making an update on the status of its disengagement transaction with
Silverstone Trust ("Silverstone").

    Assets of Global DIGIT II and Withholding of Payments by Silverstone

    The assets of Global DIGIT II are partly comprised of three credit
default swaps ("GD-II Swaps") entered into with Silverstone and the related
collateral to secure obligations under the GD-II Swaps. The GD-II Swaps are
mirrored by back-to-back credit default swaps (the "Silverstone Swaps")
between Silverstone and Deutsche Bank A.G. (the "Bank"). Silverstone also
entered into another swap with the Bank, pursuant to which and in order to
secure its obligations toward the Bank, it issued asset-backed commercial
paper ("ABCP") to purchase collateral which was pledged to the Bank.
    The payment provisions under the Silverstone Swaps are mirrored by those
of the GD-II Swaps, such that for each payment obligation of the Bank to
Silverstone under the Silverstone Swaps, there is a corresponding payment
obligation from Silverstone to Global DIGIT II and vice versa. However, in
certain circumstances, Silverstone's position is that it has the right to
withhold payments received from the Bank. Consequently, on August 14, 2007, as
Silverstone had not rolled over its matured ABCP and ceased payments on such
ABCP, it decided to withhold payments to Global DIGIT II. As a result of
diverging views with respect to the rights of Silverstone and Global DIGIT II
with respect to the amounts received from the Bank, the amounts withheld were
segregated into an escrow account pursuant to a Standstill Agreement entered
into between Global DIGIT II and Silverstone, in which an amount of about
$0.99 per unit has been accumulated as of September 15, 2008.

    The Disengagement Transaction

    On December 21, 2007, Global DIGIT II entered into an agreement with
Silverstone in order to negotiate in good faith a transaction pursuant to
which Silverstone would effectively be replaced by the Bank as counterparty to
the GD-II Swaps that are presently in force between Global DIGIT II and
Silverstone (the "Disengagement Transaction") and would severe all relations
between Global DIGIT II and Silverstone and disengage Silverstone from Global
DIGIT II's current structure.

    The Plan

    On March 20, 2008, noteholders members of the Pan-Canadian Investors
Committee for Third-Party Structured Asset-Backed Commercial Paper (the
"Committee") filed with the Ontario Superior Court of Justice a plan of
compromise and arrangement (the "Plan") pursuant to the Companies' Creditors
Arrangement Act in respect of the ABCP of certain issuer trustees, including
the issuer trustee of Silverstone.
    On June 5, the Plan was sanctioned by the Court and further to an appeal
to the Court of Appeal of Ontario by certain dissident noteholders holding
ABCP, this Court unanimously dismissed the appeal on August 18 and upheld the
Plan as proposed. On September 2, 2008, the judgment of the Court of Appeal of
Ontario was appealed to the Supreme Court of Canada by dissident noteholders
and on September 19, 2008, the Supreme Court of Canada denied leave to appeal.
Consequently, the Committee expects to be in a position to commence the
process for implementation of the Plan by September 30, 2008 or shortly
thereafter, with a view to completing implementation during the month of
October 2008.
    Completion of the Disengagement Transaction and the resumption of the
distributions and redemptions depend on the successful implementation of the
Plan and is expected to become effective on the date that the Plan is
implemented. Further to the Disengagement Transaction, funds available to pay
distributions and redemptions would flow directly from the Bank and would no
longer be dependent on Silverstone's ability to renew or replace its
outstanding indebtedness or otherwise be subject to any claim by Silverstone
to withhold payments to Global DIGIT II. Thereafter, funds held in the escrow
account under the Standstill Agreement would be released in full to Global
DIGIT II. The amounts which have been accreting in respect of the residual
amount that would otherwise have been payable to Global DIGIT II at the
maturity date of the GD-II Swaps, would be released to Global DIGIT II; such
amounts totaled approximately $0.55 per unit as of September 15, 2008, but are
subject to the costs of the Disengagement Transaction which cannot presently
be assessed.

    
    Assuming the Disengagement Transaction is completed, it is anticipated
that:

    1. the August 15, 2007 distribution ($0.0687 per unit) that was
       previously declared but suspended on August 14, 2007, would be
       released to the holders of record at the close of business on July 31,
       2007;

    2. as soon as possible after the release of funds currently held in the
       escrow account, Global DIGIT II would declare a distribution of
       approximately $0.89 per unit;

    3. subject to losses upon the occurrence of Credit Events, monthly
       distributions would resume and generally be at the same level as was
       previously the case; and

    4. annual and quarterly redemptions would resume and financial conditions
       of such redemptions would reflect the then current market environment
       for such financial instruments.
    

    About Global DIGIT II

    Global DIGIT II provides an economic interest in a equity tranche of
credit default swap agreements in respect of portfolios of mortgage-backed
securities, asset-backed securities, structured finance securities and
synthetic corporate exposures.




For further information:

For further information: François Rivard, (514) 879-6405,
http://info.fbn.ca/trusts

Organization Profile

Global Diversified Investment Grade Income Trust II

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890