BBG - Billabong International

[skc]

CBA sold it's debt at 85c/$1 last night.

Given the lease liabilities + outstanding debt, the equity must be worth zero or close to it. If you can buy the debt at 80c you could probably end up owning something that will be worth a bit more in a few years.

So what's with all this buying of the equity? The only 2 possible explanations are short covering or buying votes ahead of any recapitalisation proposal...

Just don't understand why it needs to be done so aggressively.

 

[Huskar]

So what's with all this buying of the equity? The only 2 possible explanations are short covering or buying votes ahead of any recapitalisation proposal...

Just don't understand why it needs to be done so aggressively.

One thesis: equity has already been discounted so much that it will retain some value in any recap/wind-up and value will fall in the equity. In recap deals it is all about finding where the value waterfall stops: from senior debt to subordinate to preferred stock to equity etc.

Maybe BBG half-year gives hint when it states that even with breach of covenant only 85% of EBITDA demanded in support of financing facilities. If $10m EBITDA p.a. for equity and ~8x EBITDA valuation gives ~$80m (which is near enough to current price).

Equity seen as an option on any upside. But downside looks pretty bad unless you also hold something higher up in the capital structure.

 

[McLovin]

So what's with all this buying of the equity?

...

buying votes ahead of any recapitalisation proposal...

Probably this, although I do wonder whether equity will have any say in the recap. That being said in terms of equity this is a microcap now, even a 45% move in the SP price was only ~$30m and has changed the EV by <5%. I guess that makes it small change, especially if you're buying the debt at a 20% discount to face value. And you end up with some element of control if equity still does exist.

 

[skc]

One thesis: equity has already been discounted so much that it will retain some value in any recap/wind-up and value will fall in the equity. In recap deals it is all about finding where the value waterfall stops: from senior debt to subordinate to preferred stock to equity etc.

Maybe BBG half-year gives hint when it states that even with breach of covenant only 85% of EBITDA demanded in support of financing facilities. If $10m EBITDA p.a. for equity and ~8x EBITDA valuation gives ~$80m (which is near enough to current price).

Equity seen as an option on any upside. But downside looks pretty bad unless you also hold something higher up in the capital structure.

Given that debt is changing hands at 80/85c in the dollar, it's pretty hard not to conclude that there's no value left in equity. A recap plan may give some token share of the recapped company to the existing holders. I remember the old BBI (Babcock and Brown Infrastructure) recap saw existing equity diluted to something like 0.06% of the new structure. They even rubbed it in by rounding it down to 0% in one of their announcement!

Probably this, although I do wonder whether equity will have any say in the recap. That being said in terms of equity this is a microcap now, even a 45% move in the SP price was only ~$30m and has changed the EV by <5%. I guess that makes it small change, especially if you're buying the debt at a 20% discount to face value. And you end up with some element of control if equity still does exist.

I seem to remember that in certain company structures, the equity holders can choose to sink the ship or accept a recap... BBI above and Centro came to mind.

Well 30m shares changed hands at ~15.72c VWAP yesterday so it costed ~$5m. That's quite a lot of money relative to the size of the debt.

 

[Uncouth Barbarian]

Given that debt is changing hands at 80/85c in the dollar, it's pretty hard not to conclude that there's no value left in equity. A recap plan may give some token share of the recapped company to the existing holders. I remember the old BBI (Babcock and Brown Infrastructure) recap saw existing equity diluted to something like 0.06% of the new structure. They even rubbed it in by rounding it down to 0% in one of their announcement!



I seem to remember that in certain company structures, the equity holders can choose to sink the ship or accept a recap... BBI above and Centro came to mind.

Well 30m shares changed hands at ~15.72c VWAP yesterday so it costed ~$5m. That's quite a lot of money relative to the size of the debt.

I think equity is almost reduced to zero. With $412 million in lease committments, another $400 plus million in loans, and deferred payments and total liabilities circa one billion dollars and trading losses the ability to turn it around is slipping away. They need to sell everything they can to clear interest bearing debts and avoid receivership.
With two of the seven banks selling down loans at a discount and the others will follow it is the time for Launa to seek relief and forgiveness of some debt. The lenders have clearly shown they expect not to receive 100 cents in the dollar on loans and are willing to settle for 15-20% and possibly more discount to distance themselves from complete anihilation should it collapse completely. HSBC took a $4 million loss on $20 million and CBA $10 million on $65 million. That augers well for perhaps a further $60 million plus relief on the remaining $300 million and subsequent interest payments as well.
If PE advance funds to refinance it wont be for free and will certainly attract an additional 4-5% premium over current bank interest rates which is ludicrous when they are struggling with lower interest rates, why would you risk paying so much more when you are unprofitable right now.
They need to sell everything NOW, shops, properties, most brands and pay off debts, and start again.
If they had followed my advice and got the shops profitable they could have sold shops, stock, leases and staff would be off balance sheet. Instead, they have chosen to close shops, discount stock below cost, pay staff redundancies and pay massive exit costs on broken leases. Another error of judgement.
It was and still maybe fixable but time is rapidly running out.

It is like watching your football team get slaughtered and the coach does nothing as the clock counts down to game over.....Come on coach......make some moves.......

 

[McLovin]

Well 30m shares changed hands at ~15.72c VWAP yesterday so it costed ~$5m. That's quite a lot of money relative to the size of the debt.

If you include the leases (and I'm not sure how easy it is to wriggle out of those) then it's a small fraction (<1%). There's probably also a few retail punters who see that the sp is "cheap". I guess we'll know in the next couple of days when/if the holder interest notices start coming in.

Basically, my point is that a couple of days ago the company had an EV of ~$700m (debt ~$240m (at 80%) + lease liabilities $400m + mc $60m). Even now the EV has only changed marginally to ~$730 If what you said is true and equity can either sink the ship or recap it, then it seems like small change in order to end up with some form of control, or at least being at the table. That would seem to be the only value left in the equity.

 

[Huskar]

If you include the leases (and I'm not sure how easy it is to wriggle out of those) then it's a small fraction (<1%). There's probably also a few retail punters who see that the sp is "cheap". I guess we'll know in the next couple of days when/if the holder interest notices start coming in.

Basically, my point is that a couple of days ago the company had an EV of ~$700m (debt ~$240m (at 80%) + lease liabilities $400m + mc $60m). Even now the EV has only changed marginally to ~$730 If what you said is true and equity can either sink the ship or recap it, then it seems like small change in order to end up with some form of control, or at least being at the table. That would seem to be the only value left in the equity.

AFR this morning comes up with a SP value of 30c based on EV/earnings of 5.3x - but of course does not include lease liabilities in that equation..

 

[skc]

Recap announcement out. I am thoroughly confused...

Bridging loans, long term loan, asset sale, interest in cash, interest PIK, options, RPS, convertible loans. They can print the whole recapitalisation proposal and call it an Advanced Corporate Finance textbook.

From what I've seen, a few things jump out at me.

1. After all the dilution, Altamont will hold up to 40% of the company, and existing holders will still own ~60%. That is not a bad number for a major on-the-brink recap.

2. The options issued (which will ultimately be ~10.5%) have a strike of 50c. That's ~2x today's closing price.

3. All the debt are quite expensive. Even in the long term financing scenario, there's $200m base committment @ 12% (7% cash, 5% paid in kind (I assume that means shares rather than boardshorts)). Then there's upsize committment of $54m @ 10% cash. Convertible note of $40m is also 12% (7% cash, 5% PIK). Lastly there's a asset-based revolving credit facility of up to $160m @ base rate + 2%.

Can anyone do some sort of valuation around BBG's fully diluted equity?

My immediate guess is that BBG will jump up on open tomorrow, as it is no longer on the brink of collapse and any shorts will probably run for cover.

 

[Tim Canberra]

I think the trading halt lasts until Thursday. Anyone want to guess what the price might climb or dive to?

 

[Huskar]

So interesting to watch this. And as you say SKC a perfect case example for a Corporate Finance textbook.

Oaktree seem real peeved that they have missed out on an equity stake, although of course they will still make a ~15% return in a matter of months.

The uncertainty = real opportunity in my opinion

 

[Buttsie]

+21% at time of typing. Crazy crazy movement on this stock

 

[beargggrrr]

I'm hearing some positive things on BBG. Apparently out their structural issues, have solid backing and are well positioned for their next phase. Has anyone else heard anything?

 

[blaz0430]

how does everything think billabong is going?

 

[tech/a]

BBG absolutely cracking along.
Technically looks very bullish.
Will post a chart tonight.

 

[notting]

Cool, thanks for the heads up.
Guess we should wait to see what it does when if it decides to retest that break at .68
And probably .60

 

[tech/a]

Cool, thanks for the heads up.
Guess we should wait to see what it does when if it decides to retest that break at .68
And probably .60

If it does!

 

[tech/a]

My technical view of BBG.

Click to expand

 

[notting]

Glad I was not on my computer at the start of trade today.
Was short this and would not have enjoyed the opening bounce. Although I do normally wait till around 12.30 to see if it is going to stay.
Big outside bar, finishing on it's lows is often negative but, still sitting above support so.
May just follow the market.

 

[Mindfultrader]

A few thoughts here on Billabong for anyone interested.



Cheers!

 

[pitpan22]

BBG shares

Hi there, I was just wondering if anyone could please let me know what ´s happening to BBG shares right now. On my trading platform BBG shares are not listed any more and the same goes for my portfolio.
Any help would be highly regarded.
Cheers