BBI - Babcock & Brown Infrastructure

jacobkball · 27 August 2009

persistentone said:
Which tool are you using to see the buy and sell queues? Is that a broker screen or some third party software?

That's just the Market Depth screen within CommSec.

I think it's easy to say, in hindsight, oh I should have sold at 18/19 cents, but it's impossible to gauge just how high, and how long, the price will jump.

I am, however, seeing a definite pattern with these shares with crazy/furious buying and selling whenever an announcement that's even slightly positive comes out!

People will get caught soon by selling out at what they think is the top, but it just keeps going or stays up there.

I just think, if that's the way the price moves with an announcement like that, imagine what's going to happen if a 'Sale of DBCT' announcement comes through.

fureien · 27 August 2009

thats why despite the news being clearly overrated people still buy or hold expecting that the dbct news will eventually come out and resistances like 11 cents which we saw today will be like nothing. Breakthrough like the hulk bashes through ur house.

In the announcement they didnt say any specific date about dbct right?
just that its in progress yaddiyaddiyada and that they have low offers all the way to 100%?

fuzzie · 27 August 2009

I think the most significant thing for BEPPA holders in the announcements was that the Change of Control Event may force the redemption of the BEPPAs because there are potentially problems with rolling over to equivalent securities.

There is no date given as the change is conditional only on lenders' approval. It does sound like it is imminent and I guess will probably occur prior to any DBCT sale.

So either redemption or a restructure offer is on the cards short term?

banska bystrica · 27 August 2009

fuzzie said:
I think the most significant thing for BEPPA holders in the announcements was that the Change of Control Event may force the redemption of the BEPPAs because there are potentially problems with rolling over to equivalent securities.

There is no date given as the change is conditional only on lenders' approval. It does sound like it is imminent and I guess will probably occur prior to any DBCT sale.

So either redemption or a restructure offer is on the cards short term?

No. There is no "change of control event". They have negotiated with BNB liquidator that the management company stays in charge of BBI until 2012.
No coincidence that date...2012. That's when BEPPA resets.

persistentone · 27 August 2009

fuzzie said:
I think the most significant thing for BEPPA holders in the announcements was that the Change of Control Event may force the redemption of the BEPPAs because there are potentially problems with rolling over to equivalent securities.

There is no date given as the change is conditional only on lenders' approval. It does sound like it is imminent and I guess will probably occur prior to any DBCT sale.

So either redemption or a restructure offer is on the cards short term?

They don't need a change of control event! The EPS contract language clearly states if they don't pay dividends for one year they can initiate a conversion, and they will have stopped paying dividends for a year very soon.

Whether they do or don't convert now or later, this issue is going to hang over the BBI stock like a bad hangover until it is resolved. For me the announcements gave me nothing new.

persistentone · 27 August 2009

jacobkball said:
That's just the Market Depth screen within CommSec.

I think it's easy to say, in hindsight, oh I should have sold at 18/19 cents, but it's impossible to gauge just how high, and how long, the price will jump.
...
I just think, if that's the way the price moves with an announcement like that, imagine what's going to happen if a 'Sale of DBCT' announcement comes through.

It's hard to say where the stock will go when you only have the chart as your reference. But I have a very elaborate spreadsheet model and I have problems even with a *good* DBCT sale at getting a recovery on the EPS security much higher than 20 to 40 cents per share.

So for me to see the shares go to 20 cents with no definitive sale announced was just a sick joke.

I agree with you that the market's attitude towards BBI seems to be changing. I do sense the market wants to start being positive about the story. It's just still very hard for me to build a decisive risk and reward here when my downside on the EPS is 15 cents and my upside may only be another 5 to 15 cents.

fuzzie · 27 August 2009

banska bystrica said:
No. There is no "change of control event". They have negotiated with BNB liquidator that the management company stays in charge of BBI until 2012.
No coincidence that date...2012. That's when BEPPA resets.

OK. After re-reading the Internalisation and Separation release, this makes sense. [..until 2012 (at the latest)...] and BBI(T) even has the sole right to say who comprises BBIS. So we have an external manager that is solely answerable to the managed entity, for a fixed fee. Not much room to gouge fees there!

It would appear the board is being careful to cross the t's and dot the i's. I can't see that such a team wouldn't be doing everything possible to make the right move with DBCT.

hardyakka · 27 August 2009

persistentone said:
And where are they going to get this cash?! They can't even afford to pay the dividend. Where are they going to come up with more than $300M for this payment?!

Persistence,

We are over the worst of the GFC and BBI's performance will trend up IMO. BEPPA is a major impediment to BBI recognising its true value, primarily via dilution risk and it prevents a capital raising. If the BEPPA impediment is removed then it is a win-win, if BEPPA is paid out at 50 cents in the $ then that is about $400M in costs but adds about 18cents in net assets to each BBI ($400M/2.4B BBI). That is a good deal for both parties and the $400M can easily be financed by a capital raising (assuming DBCT proceeds are applied to senior debt).

But what I can see happening is management will fluff around and by the time a decision is made to try and buy back BEPPA at a discount we will be beyond the DBCT sale, markets will have further improved (along with the BBI price) and any discount on BEPPA will be significantly reduced.

Have a look at the price movement in other hybrids to see the impact of restored confidence, here is a listing
http://www.macquarie.com.au/macsecmc/codi/CodiServlet?nav=start&documenttosend=income_security_doc
I bought GMPPA at $25, they are now over $61 between mid-may and today.

But then at the same time I am not overly concerned because IMO BEPPA will show that sort of movement by the end of the financial year.

On a separate issue one very interesting thing from yesterdays price movements is that BEPPA really only touched on levels it was at within the last month, so the affect of the announcements was pretty minimal. BEPPA is a more complex instrument and not as widely understood as BBI.

As you are aware all insto mandates have an small allocation to higher risk securities, considering their risk averse nature BEPPA is an ideal investment for that category. This is a probable source of demand for BEPPA IMO.

Regarding change of control, the intention may not be to trigger a C of C event, however I consider it a distinct possibility. If the BNB liquidator sells the RE outside of the group simply because that is the best offer then an event is triggered. There is much less certainty now than ever before that a C of C event will not be triggered.

BBI value will not approach a reasonable % of net assets until BEPPA is dealt with, the sooner it does so then the greater any discount will be. The longer it delays and markets recover more then the less any BEPPA discount is likely to be.

Cheers

persistentone · 28 August 2009

hardyakka said:
Persistence,

We are over the worst of the GFC and BBI's performance will trend up IMO. BEPPA is a major impediment to BBI recognising its true value, primarily via dilution risk and it prevents a capital raising. If the BEPPA impediment is removed then it is a win-win, if BEPPA is paid out at 50 cents in the $ then that is about $400M in costs but adds about 18cents in net assets to each BBI ($400M/2.4B BBI). That is a good deal for both parties and the $400M can easily be financed by a capital raising (assuming DBCT proceeds are applied to senior debt).

But what I can see happening is management will fluff around and by the time a decision is made to try and buy back BEPPA at a discount we will be beyond the DBCT sale, markets will have further improved (along with the BBI price) and any discount on BEPPA will be significantly reduced.

Have a look at the price movement in other hybrids to see the impact of restored confidence, here is a listing
http://www.macquarie.com.au/macsecmc/codi/CodiServlet?nav=start&documenttosend=income_security_doc
I bought GMPPA at $25, they are now over $61 between mid-may and today.

But then at the same time I am not overly concerned because IMO BEPPA will show that sort of movement by the end of the financial year.

On a separate issue one very interesting thing from yesterdays price movements is that BEPPA really only touched on levels it was at within the last month, so the affect of the announcements was pretty minimal. BEPPA is a more complex instrument and not as widely understood as BBI.

As you are aware all insto mandates have an small allocation to higher risk securities, considering their risk averse nature BEPPA is an ideal investment for that category. This is a probable source of demand for BEPPA IMO.

Regarding change of control, the intention may not be to trigger a C of C event, however I consider it a distinct possibility. If the BNB liquidator sells the RE outside of the group simply because that is the best offer then an event is triggered. There is much less certainty now than ever before that a C of C event will not be triggered.

BBI value will not approach a reasonable % of net assets until BEPPA is dealt with, the sooner it does so then the greater any discount will be. The longer it delays and markets recover more then the less any BEPPA discount is likely to be.

Cheers

If they had the cash to buy back EPS at $0.50 on the dollar (and they do NOT), then clearly they would just start buying back debt at 20 cents, then 30 cents, then 40 cents, until the remaining holders were demanding higher.

In their position - which is that it will take them six years to dig out of this hole by EBITDA alone - I would be putting the screws to the EPS and simply buying back debt at 40 cents on the dollar for as many *years* as would be necessary to clear off at least 60% of it. Then I would look at bringing in a key investor to package an offer to the remaining EPS and to recapitalize.

I don't see how they will attract such an investor today, and I don't see how they can afford to pay off any of EPS until all corporate debt is gone. The best scenario I see playing out would be a DBCT sale about $2.6B that makes corporate debt go away, and then start to use EBITDA to buy back debt over the course of many quarters. That's slow and unglamorous, but a very good return on investment compared to any scenario that involves refinancing today.

Tysonboss1 · 28 August 2009

persistentone said:
I don't see how they will attract such an investor today, and I don't see how they can afford to pay off any of EPS until all corporate debt is gone. The best scenario I see playing out would be a DBCT sale about $2.6B that makes corporate debt go away, and then start to use EBITDA to buy back debt over the course of many quarters. That's slow and unglamorous, but a very good return on investment compared to any scenario that involves refinancing today.

Sounds sweet to me, I quite like the current position of no divs and all profits beening funneled off debt. Good asset sales are a bonus.

hardyakka · 28 August 2009

Tysonboss1 said:
Sounds sweet to me, I quite like the current position of no divs and all profits beening funneled off debt. Good asset sales are a bonus.

You are spot on. We can discuss until the cows come home different ways for value to be relected in the BBI & BEPPA prices. At the end of the day I really could not care less how it is done, so long as the value is added.

What I am aware of is that BEPPA is holding back BBI value, and it will need to be dealt with somehow. As a BEPPA holder I may not be able to vote, but I know that BBi desperately needs funds and BBI holders cannot raise funds or even dream of distributions until BEPPA holders are dealt with. Deal with BEPPA and then BBI will start to see what it desires, real value reflected in the unit price with no threat of dilution or hindrance to capital raisings etc.

I am quite happy to be patient, but BBI unitholders need to appreciate the longer before BEPPA is dealt with, then the less any discount and ultimately greater the price that BBi will pay to deal with BEPPA.

Cheers

cpsharky · 28 August 2009

"As a BEPPA holder I may not be able to vote"

We do at the moment ....

(b)
Holders will have the right to vote at a general meeting of the Company in the following circumstances:
(1)
during a period during which a dividend (or part of a dividend) in respect of the EPS is in arrears;

Garpal Gumnut · 28 August 2009

The chart looks pretty crook on this, both long and short term.

I won't post it as it will demoralise holders.

gg

banska bystrica · 29 August 2009

The problem for BBI in relation to the sale of DBCT is if the potential buyers of DBCT are stalling, knowing that SPARCS can dilute BBI securityholders very heavily on November 17. If the buyers stall, BBI will be very keen to get a sale announced so that the 20 day VWAP can climb to greater heights than the current price of 8c. It may open the door for a lower DBCT price.

Tysonboss1 · 29 August 2009

banska bystrica said:
The problem for BBI in relation to the sale of DBCT is if the potential buyers of DBCT are stalling, knowing that SPARCS can dilute BBI securityholders very heavily on November 17. If the buyers stall, BBI will be very keen to get a sale announced so that the 20 day VWAP can climb to greater heights than the current price of 8c. It may open the door for a lower DBCT price.

Yeah I guess the management have to weigh up what is best for bbi shareholders,

Should they hang out for the best price and suffer massive dilution,

or should they sell at a slight discount and avoid massive dilution,

joe7068 · 30 August 2009

I can't believe some of you guys actually think they will buy back BEEPA in order not to dilute the shareholders. This is ostrich like thinking. They don't have any money to be able to do that. The banks wouldn't lend them any money to do that. And please don't suggest they would as there isn't a a chance in hell. Why would they when they rank senior to BEPPA holders anyway.

The only way this stock can turn around is if they sell DP and the longer this takes, the less optimistic I am that they will be able to achive a decent price or what they're asking for.

They can of course sit tight as the banks are unlikely to pull the plug seeing they are earning their interest and don't want to put it in receivership as that would mean they would have to begin providing for losses.

The only way out for these people is if they can hang in there and wait until a good offer comes in.

Tysonboss1 · 30 August 2009

joe7068 said:
I can't believe some of you guys actually think they will buy back BEEPA in order not to dilute the shareholders..

Sparcs is first, and beppa is not for years,

But it's more about raising the share price so as to lessen the affect of the diloution.

obviously conversion at a price of 7c i far worse than at a price of 15c.

hardyakka · 30 August 2009

joe7068 said:
I can't believe some of you guys actually think they will buy back BEEPA in order not to dilute the shareholders. This is ostrich like thinking. They don't have any money to be able to do that. The banks wouldn't lend them any money to do that. And please don't suggest they would as there isn't a a chance in hell. Why would they when they rank senior to BEPPA holders anyway.

Joe,

You are very certain on what will and will not happen. Do you have an insight into BBI & BEPPA that we have not picked up on? If so please share it.

Cheers

fureien · 31 August 2009

this might be just me, but im having an awful lot of fun trading bbi and beppa in and out. If they buy back the EPS or sell dbct, its like i have nothing to look forward to anymore lol. im not making millions but keeps me entertained at least

joe7068 · 1 September 2009

hardyakka said:
Joe,

You are very certain on what will and will not happen. Do you have an insight into BBI & BEPPA that we have not picked up on? If so please share it.

Cheers

an insight in terms of inside information? no Of course not. I'm certain they don't have the money to buy a drink let alone BEPPA.

There's no cash there.

BBI - Babcock & Brown Infrastructure

jacobkball

fureien

fuzzie

banska bystrica

persistentone

persistentone

fuzzie

hardyakka

persistentone

Tysonboss1

hardyakka

cpsharky

Garpal Gumnut

Ross Island Hotel

banska bystrica

Tysonboss1

joe7068

Tysonboss1

hardyakka

fureien

joe7068

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