Reminds me of the movie “The Santa Clause.” In the movie, a rarely used legal clause – “the Santa Clause” - thrusts Tim Allen into the role of Jolly Old St. Nick after Santa meets his demise falling off Tim’s roof.

The BCE deal fell prey to “the Solvency Clause.” Or more specifically, a statement released by KPMG that they would not likely be able to say in their opinion, that BCE would meet solvency tests. And so, the deal effectively dies. Without any of the potential creditors having to cough up the $1.2 billion break up fee.

Solvency tests exist in any corporate financing. But, they rarely cause a late stage failure of a deal. Because, investors assume these tests have been done on a regular basis during the course of negotiations.

If you think this smells on a whole series of levels, you may be right. KPMG was doing these tests on behalf of the two major US banks who were the lead creditors in the deal. The banks wanted out, they did not want to pay a break up fee and the only way for a clear break is if BCE no longer met solvency tests.

On the other hand, solvency is based on a series of assumptions. Tweaking any assumption ever so slightly, can tilt a test from pass to failure. Much like a minor change in volatility can have a major impact on the value of an option.

Clearly, the last two months have changed the economic landscape. A recession may tweak next years earnings at BCE. The downturn in the stock market has certainly impaled the BCE pension plan. And to that point, unfunded pension liabilities affect solvency.

At least, with this, we have a better understanding of the outcome. While anything is still possible, this deal looks doubtful. Which means, it is time for me to eat crow, because I was wrong about this deal on so many levels.

First of all, I thought the deal would go through. Wrong!

Secondly, I thought that if the deal did not go through, BCE shareholders would at least get their break up fee. Wrong!

Third, I thought that a successful conclusion to the BCE deal might be a catalyst for the financial markets. Because it would show investors that liquidity was returning to the market, something that central banks around the world have been trying to stimulate. Instead, it turns out, the failure of the deal may be a short term catalyst for the financial markets.

Interestingly, as I digest my crow, that last point is worth some discussion. At the heart of the financial market meltdown was the excessive use of leverage. Or more specifically, the extension of credit to borrowers who were not creditworthy.

We have also felt over the past year, the pain associated with de-leveraging. Perhaps the catalyst investors were looking for, is that banks step up their due diligence process, so as to avoid future leveraging bubbles. Perhaps BCE is a sign that the banks are doing just that. Which is to say, the scrutiny applied to the BCE deal, rather than the deal itself, may be what the financial markets are looking for.