Coventree shares defy logic

As focused as the DTM are on the disconnect between BCE’s (BCE:TSX) quote and the anticipated $42.75 takeout price of the proposed OTPPB going-private transaction, the truly goofy story of the day is that Coventree (COF:TSX) shares are trading higher, even as BCE falls yet again.

If you haven’t been paying attention, Coventree was the drug kingpin of the asset-backed commercial paper overdose. Their motto? “Excellence, Integrity, Innovation.” As my friend at the Red Star is fond of saying, you can’t make this stuff up.

Tens of billions of dollars of investment capital are locked away in someone’s attic, courtesy of this small band of Bay Street wheeler-dealers. Clearly, plenty of market players aren’t paying attention to what’s going on there, as Coventree shares are trading slightly higher today. Not a lot of money traded hands, mind you, but for a company that says it will likely have to wind up operations, a $0.66 share price is eye-popping.

It is fair for you to point out that the markets have consistently ignored the previous Coventree warnings in this space. Even when the stock was above $3.50 (and $2, and $1) and I was grousing about its lack of viability (see prior posts “Where’s the Bank of Canada on Coventree stumble?” August 14-07, “The shorts will be out in force at COF” August 16-07, “DBRS puts the bullet in Coventree” September 13-07 and “Only 99 cents to go” September 20-07), people went right on buying the stock.

According to Stockhouse, one of few business journalists at the National Pest that hasn’t been able to land a gig elsewhere (other than TT) was promoting Coventree’s business opportunities just last week:

The National Post reports in its Wednesday edition that a plan to refloat billions worth of shackled asset-backed commercial paper may also lift the fortunes of Coventree. The Post’s John Greenwood writes that Coventree is the largest third party sponsor of non-bank ABCP. Unnamed sources say Coventree is on a short list of companies vying for a contract to administer about $30-billion worth of assets underlying the troubled notes that would be part of a proposed restructuring. “It makes sense that it should be Coventree because they are already doing it and have all the information in their system,” says one source. Coventree was one of a handful of non-bank sponsors of ABCP that landed in the spotlight when the market fell apart amid a cloud of allegations of poor disclosure. Under the restructuring that is being negotiated, the assets underlying the notes would be thrown into three big pools to be run by an administrator chosen by the investors. Observers say Coventree and other ABCP sponsors have the most expertise, they are already doing the job.

It is entirely consistent then, I suppose, that COF is down barely 20% since they threw in the towel (this from Coventree’s Feb. 1st press release):

Although the Special Committee is continuing to review strategic options for the Company, the range of options that remain under consideration are limited and will likely involve, among other things, the orderly windup of the Company’s operations pending implementation of the Restructuring Plan.

Don’t say that you weren’t warned.

MRM