BBI - Babcock & Brown Infrastructure

[banska bystrica]

random,
I'm thinking sometime this financial year. The 35c + 2 BBI was just an example of what could be possible once corporate debt is all but gone. It could be 20c + 2.5 BBI. Something that eliminates the chance of massive dilution in 2012 and also saves them paying out $800M in cash (which they are unlikely to have in 2012).
Management have to tread a fine line between paying down debt and also keeping enough assets and free cashflow to grow the company beyond 2012.

nathan,
I think an extension of BEPPA maturity past 2012 has got two chances of happening. Buckley's and none.
When I am talking restructure, I am talking in terms of a partial cash offer and some conversion of debt to equity. It is a winner for both BBI holders and BEPPA holders.

 

[nathanblack]

random,
I'm thinking sometime this financial year. The 35c + 2 BBI was just an example of what could be possible once corporate debt is all but gone. It could be 20c + 2.5 BBI. Something that eliminates the chance of massive dilution in 2012 and also saves them paying out $800M in cash (which they are unlikely to have in 2012).
Management have to tread a fine line between paying down debt and also keeping enough assets and free cashflow to grow the company beyond 2012.

nathan,
I think an extension of BEPPA maturity past 2012 has got two chances of happening. Buckley's and none.
When I am talking restructure, I am talking in terms of a partial cash offer and some conversion of debt to equity. It is a winner for both BBI holders and BEPPA holders.

agree. i cant see a rollover of terms either. but a buyback is on the cards. my thinking of a restructure is the same as yours, it will happen sooner or later to allow for a capital raising.

but i still think 30c is REALISTIC post dbct sale. and i still think most people would want a cash component. my logic says cash component should be equal to atleast 10c. this would most likely cover the entry price of most current holder. original holders might not be impressed but how many still exist.

but the longer they wait, the nearer to 2012 and $1 we get. the offer will need to increase linearly the nearer we get.

 

[banska bystrica]

One last chance to buy BEPPA and BBI so cheap. That is, if Euroports fails to settle. In my opinion, you will then see a basket case of a BBI price (2-3c) and BEPPA down around 6c. A big IF, but if it happens I will be buying BBI at 3c or less with plenty of ammunition.

 

[nathanblack]

One last chance to buy BEPPA and BBI so cheap. That is, if Euroports fails to settle. In my opinion, you will then see a basket case of a BBI price (2-3c) and BEPPA down around 6c. A big IF, but if it happens I will be buying BBI at 3c or less with plenty of ammunition.

Agreed. Big IF. Wont happen.

Don't agree with the consequences IF it did happen though. Sure it wont look good for management being able to broker deals and deliver on promises, which is a huge negative. The loss of faith in management might result in a loss of say 30% SP (bbi/beppa).

But its a small sale in the scheme of things, the proceeds once asset level debt is repaid are insignificant to corporate debt. So not selling it wont have a material impact, we can keep it on market and sell when a new offer is recieved or concentrate on moving a different asset like westnet rail.

Even that will be somewhat determined by timing. Afterall the dbct announcement is due around same time. If BBI came out and said we just sold 100% DBCT for $2.8bil, and oh yeah btw the euroports sale is off now. The net result would still be positive.

Clearly the only way this SP is going down that hard is if DBCT doesnt sell or sells for peanuts. I just dont see it happening.

 

[banska bystrica]

What about the financial consequences if Euroports doesn't settle? Put options obligation circa $100M? Plus refund of $75M deposit monies? That would crush sentiment in the short term. 3c would be a formality for the head stock in my opinion.

 

[nathanblack]

What about the financial consequences if Euroports doesn't settle? Put options obligation circa $100M? Plus refund of $75M deposit monies? That would crush sentiment in the short term. 3c would be a formality for the head stock in my opinion.

Ageed. Not great. But BBI has $50mil after sweep, so im sure the $75mil wouldnt be an issue and the put option hasn't been exercised and can always be renegotiated.

IMHO euroports can only have been extended for 1 of 2 reasons:
1. the sale will go ahead possibly with a tweak to price or % OR;
2. it wont go ahead(unlikely), but BBI know that the month extension is enough for DBCT sale to be finalised/announced.

If DBCT goes, then do you still consider the Euroports deposit and put option as significant to SP? Surely they will have access to the required funds, and surely the positive would far outweigh the negative.

 

[banska bystrica]

"On 12 July 2007, Euroports Holdings S.a.r.l entered into a shareholders agreement with the minority
investors who were the previous owners of the Manuport Group. Euroports Holdings S.a.r.l owns 75% of
Benelux Port Holdings S.A, whilst the minority investors own the remaining 25%. Benelux Port Holdings
S.A was then used as the entity to purchase Manuport Group NV, Westerlund Group NV and CTB
Magemon. As part of the shareholders agreement, a put option arrangement was entered into.
The put option gave each of the minority investors the right, but not the obligation, to sell all or part of
their shares in Benelux Port Holdings S.A to Euroports Holdings S.a.r.l. The put option could be
exercised between 18 months and 10 years after the date of signing the shareholders agreement. The
put option exercise price is calculated at the time the put option is exercised, based on a formula
contained in the shareholders agreement.
In February 2009, the minority investors purported to exercise the put option and Euroports Holdings
S.a.r.l and the minority investors are currently implementing the expert determination process set out in
the shareholders agreement to determine the exercise price applicable to the put option. Once the
exercise price is determined and accepted, Euroports Holdings S.a.r.l has ten business days to make
the appropriate payment. As at the date of this Notice of Meeting and Explanatory Memorandum, the
exercise price has yet to be determined.
Whilst it is expected that this commitment will be funded from the proceeds of the Euroports share
subscription agreement when that transaction closes, there is a risk that the amount determined as
payable under the expert determination process is such that the proceeds from the Euroports share
subscription agreement is insufficient to meet the amount payable. If this proves to be the case, then
BBIL will be liable under the share subscription agreement to indemnify the two incoming investors in
respect of any amount payable under the put option in excess of the proceeds provided under the share
subscription agreement.
If the transaction under the share subscription agreement does not complete, Euroports will not have
sufficient cash to meet the obligation under the put option and this could lead to a winding up of the
Euroports business if other arrangements cannot be agreed with the holders of the put option."

"Exclusivity deposit
Euroports Holdings S.a.r.l. also entered into an exclusivity agreement with one of the investors under the
share subscription agreement, Babcock & Brown European Infrastructure Fund. Under the terms of the
exclusivity agreement, a refundable deposit of €35.0 million ($71.2 million) was paid to Euroports
Holdings S.a.r.l.
The obligations of Euroports Holdings S.a.r.l., including the obligation to repay the deposit in the event a
sale of Euroports does not proceed, were guaranteed by BBIL. Babcock & Brown European
Infrastructure Fund was also subsequently granted a fixed and floating charge over the assets of
another BBI Group company, BBI Europe Holdings Pty Ltd, which indirectly owns all of BBI’s interests
in Euroports.
The amount of the deposit is expected to be repaid upon completion of the transaction under the share
subscription agreement.
If the transaction under the share subscription agreement does not complete, Euroports will not have
sufficient cash to repay the deposit and Babcock & Brown European Infrastructure Fund may have
recourse to either or both of the fixed and floating charge and the BBIL guarantee."

 

[banska bystrica]

What did Euroports do with the deposit monies seeing they do not have it if the deal does not settle? I would have thought a refundable deposit would be put in trust until settlement.

 

[nathanblack]

The put option could be exercised between 18 months and 10 years after the date of signing the shareholders agreement. The put option exercise price is calculated at the time the put option is exercised, based on a formula
contained in the shareholders agreement.

In February 2009, the minority investors purported to exercise the put option and Euroports Holdings S.a.r.l and the minority investors are currently implementing the expert determination process set out in
the shareholders agreement to determine the exercise price applicable to the put option.

Whilst it is expected that this commitment will be funded from the proceeds of the Euroports share subscription agreement when that transaction closes, there is a risk that the amount determined as payable under the expert determination process is such that the proceeds from the Euroports share subscription agreement is insufficient to meet the amount payable. If this proves to be the case, then BBIL will be liable under the share subscription agreement to indemnify the two incoming investors in respect of any amount payable under the put option in excess of the proceeds provided under the share subscription agreement.

If the transaction under the share subscription agreement does not complete, Euroports will not have sufficient cash to meet the obligation under the put option and this could lead to a winding up of the Euroports business if other arrangements cannot be agreed with the holders of the put option."

I would say there is little gain for the put holder to force payment in the event the sale falls through. Its sure to be re-negotiated. Besides, it will sell.

EDIT: the deposit was swept, but BBI have access to $50mil anytime. im sure they can redraw the rest.

 

[banska bystrica]

Are you saying the deposit was swept by the banks? That is incredible. They would sweep a deposit that is subject to a sale that hasn't settled yet.

 

[hardyakka]

Before we can talk of a restructure we need be aware that the vast majority of BEPPA holders ie instos etc bought in at face value, so would do the utmost to avoid any capital loss.

Secondly any restructure deal has to be offered to all holders and all would have the right to vote, the fact that some bought in at a few cents and others at face value of $1 is irrelevant. But then subject to ASX LR requirements there is nothing to stop BBI buying a percentage of BEPPA back on-market.

IMO I see a restructure as involving equity, cash and debt. For example say 30 cents cash, 2 or 3 BBI and 25% of BEPPA being refinanced at market rates with a 5 year extended deadline. Such a proposal would be interesting because it provides immediate liquidity to BEPPA holders (and a profit), gives them exposure to the riskier equity upside and hedges this with a % of BEPPA as long term debt with its current priority. For BBi it removes debt at a discount,the threat of massive dilution and holds a much smaller component of debt at corporate level.

If a DBCT sale is transacted at circa $2.8B then that resolves the SPARCS issue, bank debt and removes the pressure to fire sale Euroports and PD Ports. The latter especially I would like to see BBI retain. A failed Euroports along with a successful DBCT sale is four paces forward, one step back. Not desirable but not the end of the world. Like most I am simply waiting for the announcement and watching trading patterns.

There is a totally different way BEPPA can be dealt with. Rather than have BEPPA sitting as debt at the corporate level. It could be associate with a single asset, namely NGPL. Now this does give up some security, but what if the return on BEPPA was amended so that it included an equity component (both income and capital) arising from the performance of NGPL AND an undertaking from BBI that a certain percentage of income would be applied in reducing the first ranking bank debt over NGPL.

Then you would have BEPPA moved to the asset level with exposure to the performance of that asset (which we agree is exceptional) whilst at the same time the bank debt on that asset is being reduced thus increasing the security of the BEPPA charge over the asset. Any such arrangement may include an option for BBI to buy out BEPPA holders upon payment of its full redemption value, in the mean time BEPPAs returns are enhanced.

Food for thought.

Cheers

 

[banska bystrica]

Agree with those thoughts re: DBCT sale at circa $2.8Bn and the effects thereafter.
Also agree we will most likely see a BEPPA restructure sooner rather than later and the options you presented are all possibilities.
BTW, you have a PM.

 

[hardyakka]

Regarding the Euroports deposit the transaction was incomplete and BBI had no right to the funds. So if the banks have swept that deposit as part of the sweep I am pretty certain that a smart lawyer would be able to establish a case that BBI may have had possession of the deposit, however it did not have ownership because a binding contractual commitment had not been entered into. As such BBi did not have beneficial ownership and title to the funds and the banks had no right sweeping monies that did not belong to BBI.

Cheers

 

[random]

I like the proposal hardyakka.

The most subtle way of management dealing with beppa though is clawing back drip by drip beppa on the market though. Sure that is slow, as not many are being offered, but what a saving for them in the long run at these prices. Yeh, i know there are more pressing immediate priorities but what great value for each $ spent.

I know this idea has been mentioned previously and apologies for not giving credit to who raised it initially.

 

[banska bystrica]

I find it incredible that the Directors would have allowed the banks to sweep that money that did not legally belong to BBI. I have never received a satisfactory answer to that whole Euroports deposit question when I have spoken to BBI IR dept. I have emailed the CFO as well and it is the only time I have never received a response. The way IR talk, you would think BBI were trading at $1.50 and the financial world has not changed. Overall, I find the CFO much more realistic.

 

[hardyakka]

I find it incredible that the Directors would have allowed the banks to sweep that money that did not legally belong to BBI. I have never received a satisfactory answer to that whole Euroports deposit question when I have spoken to BBI IR dept. I have emailed the CFO as well and it is the only time I have never received a response. The way IR talk, you would think BBI were trading at $1.50 and the financial world has not changed. Overall, I find the CFO much more realistic.

I agree, I will ring her tomorrow and ask:

a) is the deposit held separately in a trust account or does it form part of the monies swept by the banks.
b) if no binding contractual arrangement exists and BBI does not have beneficial ownership of those funds do BBI intend upon recovering it from the banks should it need be refunded.
Will post when I can.

Cheers

 

[nathanblack]

I find it incredible that the Directors would have allowed the banks to sweep that money that did not legally belong to BBI. I have never received a satisfactory answer to that whole Euroports deposit question when I have spoken to BBI IR dept. I have emailed the CFO as well and it is the only time I have never received a response. The way IR talk, you would think BBI were trading at $1.50 and the financial world has not changed. Overall, I find the CFO much more realistic.

its largely irelevant if it was swept or not. the bank sweep doesnt take all BBI cashflow. it leaves enough for operating expenses. so if BBI need the money for euroports deposit refund, next sweep the amount will be left.

in the mean time we saved interest charges.

 

[hardyakka]

its largely irelevant if it was swept or not. the bank sweep doesnt take all BBI cashflow. it leaves enough for operating expenses. so if BBI need the money for euroports deposit refund, next sweep the amount will be left.

in the mean time we saved interest charges.

I do not agree Nathan.

If the deal falls through due to the banks sweeping monies that they should not have, then that creates a short term liquidity problem. Ignoring the effect on sp due to a crisis of confidence, it would mean BBI needs borrow funds at penalty rates or firesale an asset to raise funds.

If that occurred then I would seriously start to question the RE board. Also if they allowed the fund to incur a loss through an error, ie by allowing funds BBI did not own to be swept, and incurring a loss by fire saling an asset then they are at risk as they must make good that loss. They would have breached their fiduciary duty and RE directors are jointly and personally liable for compliance with the financial services laws, which includes the Corps Act.

I doubt the RE would permit such an issue to arise.

 

[mikes]

who are /were the owners and directors & managers of B&B Europe Holdings Pty Ltd and B&B Europoean Infrastructure Fund and surely there would not have been any properly undisclosed association with B&B and associates or related party transactions which have not been approved by bbi holders.

 

[drsmith]

It also does not mean that they cannot sell at or above book, especially considering the additional revenue streams coming online for PD Ports.

Quasi-administrators, that I will put in the same category as the beloved death spiral. An entity either is or is not in administration. To my limited knowledge BBI is not, so any talk about quasi, pseudo, partial, thingymajig administration is simply a pile of horse manure.

Cheers

With regard to the origin of the term Quasi-administraton, go back to the first post on page 80.

With regard to the directors objectives let's not forget that this was born in the Babcock and Brown stable of irrational exuberance. The directors will first of all look after their own pay packets and will hop into bed with the lenders at unitholder expense if necessary to keep their jobs.

One need look no further than Centro as an example of this. It's still alive but the banks are hoovering up all the cash flow and shareholders have been very heavily diluted. Babcock and Brown's directors also managed to keep their jobs as part of their formal administration IIRC.