BBI - Babcock & Brown Infrastructure

[Zarate]

The situation is so bad already on BBI - the share price is trading at a price implying heavy dilution + may be a bit of option premium (on the odd chance that the cornerstone investor buys in at 7/8c or a buyer for some assets emerge).

Any short trade surely doesn't offer the greatest risk / reward!

Whenever bbi and beppa prices start to converge there is good opportunities to buy the spread. The best recent example was beppa @10c vs bbi @8.6c

When beppa is trading at under 1.5x bbi, i think it is not a bad spread. That is where the risk / reward is imo.

But again I ask, does anyone know where you can short sell bbi? Not saying I will as I'd prefer to go with the momentum.

 

[jono1887]

Whenever bbi and beppa prices start to converge there is good opportunities to buy the spread. The best recent example was beppa @10c vs bbi @8.6c

When beppa is trading at under 1.5x bbi, i think it is not a bad spread. That is where the risk / reward is imo.

But again I ask, does anyone know where you can short sell bbi? Not saying I will as I'd prefer to go with the momentum.

what does a convergence in their price represent?

 

[bellenuit]

As I've mentioned on the other board, I've just got back from 2 weeks in Bali and have not had time to read every post related to the recent announcement. One thing that I can't quite fathom re BEPPA holders.....

Apart from getting some of the large BEPPA holders (e.g. Lowi etc) on board by offering them some of the action and thus having a sufficient majority to change the BEPPA conversion terms, what possible mechanism could they put in place that would not cause a massive depreciation of the BBI share price prior to any conversion (the death spiral scenario).

The consensus seems to be that BBI will be diluted into oblivion by the CSI. But how could you structure a conversion deal for BEPPA holders that does not involve cash, when BEPPA holders know that any BBIs they receive will be worthless before they can sell them?

It is the mechanics of the process that interests me. It doesn't matter whether BEPPA is converted at face value + back interest or some new agreed formula, any agreed value point ($1, $0.5, $0.2) is pointless when their is no floor under the value of the individual BBIs to be received. Trying to use a VWAP would just cause a death spiral leading up to the VWAP period. As the BBI price falls, then obviously the number of BBIs that would need to be issued would be seen to rise, causing a further decline in the BBI price during the VWAP.

I would assume the only way that it could be done is by offering a fixed ratio of BBI shares per BEPPA share, that is not dependent on the then current price of BBIs. Then, with full knowledge of the terms offered to the CSI, one could work out what the ultimate dilution will be (allowing an indicative value to be put on BBI) and hence assess whether it is a good or bad deal for BEPPA holders, considering the alternative choices.

Is that how others see the mechanics of any BEPPA offer?

 

[banska bystrica]

From ABN Amro this morning:

"LIFELINE NEEDED
With no asset sales to date, BBI suggests it is unlikely to raise sufficient funds in
time to meet its FY10 debt maturities. As such, BBI has engaged a potential
cornerstone. However, with the possibility that the preference securities could be
converted, the recapitalisation may erode security holder value.

Asset sales process now unlikely to meet debt maturities
BBI has A$2.7bn of debt maturing in FY10 and FY11, including A$300m of corporate debt
(due February 2010). With no asset sales to date, BBI suggests the sales process is difficult
and may not realise sufficient proceeds to meet its FY10 debt maturities. A portion of BBI’s
lenders (Holdco and Corporate) appears uninterested in refinancing. Previously, we thought
BBI had to raise funds to pay down corporate debt. Now it appears BBI needs to pay down
debt at the asset level as well. BBI has also flagged that asset sales, if they do occur, may be
below book values.
Engagement of cornerstone investor may result in significant dilution
BBI is now exploring the possibility of a recapitalisation – having engaged a potential
cornerstone investor. Of significant concern, BBI has noted that BEPPAS and SPARCS may
need to be converted before any equity recapitalisation – this may be highly dilutive and
could erode security holder value. An interim agreement with the cornerstone also provides a
three-month right of first refusal over the sale of certain assets, potentially thwarting the asset
sale process. The process of finalising transaction terms and obtaining bank approvals is
anticipated to take several weeks, with no assurance that an agreement will be reached.
Until balance sheet is cleaned up significant risks remain; too much uncertainty
Given the uncertainty of the outcome it is hard to find a reason to own the stock, particularly
as BBI is suggesting asset sales at a fair price look unlikely (and thus unlikely to produce any
equity value for security holders). A full takeover bid seems remote given BBI’s complicated
structure, high debt and overhang of SPARCS/BEPPAS. Given the hybrid conversion
overhang, a recapitalisation rescue similar to TPI or AIO appears unlikely. If no asset sales
or cash injection occur, then there is a risk that BBI will default on debt repayment. If a
recapitalisation does occur with a conversion of SPARCS and BEPPAS (as BBI is
suggesting), then dilution at the current price will erode much of the remaining security value".

 

[banska bystrica]

Further:

"We view the engagement of a potential cornerstone as further indication that BBI is struggling to
meet future debt obligations. It would appear that a significant proportion of BBI’s lenders is not
interested in re-financing BBI’s debt and want their capital returned (and this now includes lenders
at the asset level).
It would also appear that asset sale valuations (expectations) on DBCT and PD Ports are
sufficiently different to consider a cornerstone, ie, vendor valuations of the assets are so low that
the remaining equity would be insufficient to meet other debt obligations. This is a bit surprising
as, less than two weeks ago at its FY result, BBI noted it was still working towards binding bids for
DBCT and PD Ports. Also, the cornerstone will have a three-month right of first refusal over any
bid for the assets, which could thwart the asset sale process.
The comment by BBI that BEPPAS and SPARCS will need to be converted before any equity
recapitalisation is a concern as it will be highly dilutive and erode security holder value. When BBI
presented to us last week, it highlighted that the internalisation of management structured with
BNB was designed so as not to trigger a change of control event that would lead to the conversion
of BEPPAS and thus to dilution. This will effectively be undone if BEPPAS and SPARCS convert.
Given the uncertain outcome it is hard to find a reason to own the stock, particularly as BBI
appears to be suggesting that asset sales at a fair price look unlikely (and thus unlikely to produce
any equity value for security holders). There is a remote possibility of a takeover bid (from the
cornerstone or otherwise), but this seems unlikely given BBI’s complicated structure, high debt
and overhang of SPARCS/BEPPAS. In the absence of any life line (asset sales or cash injection)
BBI may default on its debt repayment, which may lead to the business going into administration."

 

[banska bystrica]

It is my opinion that the market will remain irrational today. I am therefore closing out my short position "on opening matchup" and locking in my profits. Anyone from over the road take note as I always like to let people know what I'm doing at the time, not days afterwards.

 

[Zarate]

So afr says that bbi might be or is?? selling dbct for $300mil. Does this mean 300mil net of debt? I already asked why they keep saying dbct is valued at $1bn and bb said it was net of debt.

So is this the case here? That would be very good news??

 

[kineticqld]

Thanks BB for your insight over the past 12 months - I've been lurking on these forums and have taken profits on BBI and BEPPA - even after I bought BBI at around $1 in early 08 and averaged down when BBI was at 3c. No matter how you are treated across the road - your posts are appreciated here by most I should think.

Still hold small amounts of BEPPA and I'm spewing I didnt get in on IRN when it was in the 40s a few weeks ago. Please PM me when you get your blog going. Cheers.

 

[banska bystrica]

So afr says that bbi might be or is?? selling dbct for $300mil. Does this mean 300mil net of debt? I already asked why they keep saying dbct is valued at $1bn and bb said it was net of debt.

So is this the case here? That would be very good news??

The $300M (for 50%) quoted is free cash after debt. It therefore implies an Enterprise Value (EV) of $2.4Bn. BBI owe $1.8Bn on DBCT. That would be a very good result given the current market for infrastructure. My bullish projections gave an EV of $2.7Bn so $2.4Bn is a good result if that's the case.

That $300M will take care of the immediate debt repayment requirements and leave $100M for the Feb debt. If the cornerstone investor then tips in $600M which was quoted in the AFR and they also offer existing holders the chance to tip in $600M, that raises an additional $1.2Bn. BBI would be home and hosed. It's now all a matter of getting the deal done and how much of a haircut existing holders will have to accept.

I wouldn't touch BBI with a nine foot barge pole but I can see an argument to buy BEPPA at under 10c. It's still a very iffy investment as there are too many unknowns. The big question is how do they handle the hybrids? If they forcibly convert them (which they can) how many BBI's do hybrid holders receive? Until we know those details, it's impossible to know if the current price for BEPPA represents value or not.

 

[hardyakka]

Further:

"We view the engagement of a potential cornerstone as further indication that BBI is struggling to
meet future debt obligations. It would appear that a significant proportion of BBI’s lenders is not
interested in re-financing BBI’s debt and want their capital returned (and this now includes lenders
at the asset level).
It would also appear that asset sale valuations (expectations) on DBCT and PD Ports are
sufficiently different to consider a cornerstone, ie, vendor valuations of the assets are so low that
the remaining equity would be insufficient to meet other debt obligations. This is a bit surprising
as, less than two weeks ago at its FY result, BBI noted it was still working towards binding bids for
DBCT and PD Ports. A"

I have now taken a position in a few other stocks including IRN, but follow BEPPA out of interest.

The above commentary brings home one critical point to me. Very simply the board cannot be trusted to provide reasonable information. In making an investment decision that creates an unacceptable risk to me

Cheers

 

[jono1887]

BBI's been quite for a while now and the price seems to be holding at 5c. Any reason why there is still such high volumes being traded even with the overlooming bad news for the company and with no good foreseeable future?

Who is buying into a stock that is highly likely to collapse at any moment or if not suffer heavy dilution?

 

[banska bystrica]

Who is buying into a stock that is highly likely to collapse at any moment or if not suffer heavy dilution?

People who have no grasp of the fundamentals, punters, daytraders, technical traders etc etc.
As you say, it's either administration or at best heavy dilution for existing holders.
I'm awaiting any news on the cornerstone investor deal and then may participate in the placement AFTER all the dilution has taken place and the risk of administration is removed.

 

[ricee007]

People who have no grasp of the fundamentals, punters, daytraders, technical traders etc etc.
As you say, it's either administration or at best heavy dilution for existing holders.
I'm awaiting any news on the cornerstone investor deal and then may participate in the placement AFTER all the dilution has taken place and the risk of administration is removed.

I have felt the same way about BBI for a while...

I sitll think BEPPA is good value. However, I'm looking at buying into one more share, and it ain't going to be a risky one this time!

 

[boronia]

fyi

Adele Ferguson | September 18, 2009
Article from: The Australian
A GROUP of international hedge funds has joined forces to offer an alternative lifeline to the debt-stricken listed Babcock & Brown Infrastructure group, which has $7 billion of assets but is teetering on the edge.

The so-called Bumblebee Recapitalisation Proposal emerges as BBI auditors Deloitte Touche Tohmatsu issued a warning in the annual report that net current liabilities of $110 million and various other issues cast "significant doubt" on BBI's ability to continue as a going concern.

In a letter sent last night to the two BBI independent directors on a board of four, a global investment bank said it was acting on behalf of eight investors -- largely international hedge funds -- that had structured a new recapitalisation proposal which was at least $500m better than an existing deal now being discussed by the board, which involves a new cornerstone investor..............

 

[jono1887]

So how do you think this will affect BBI on tuesday?
Is this good news or bad? And what kind of investor is considering buying into or investing into a business that has such a bad balance sheet...

 

[jacobkball]

Well, Tuesday's going to be very interesting, isn't it.

I guess it really depends on what the announcement states, whenever they release that, as to whether it's viewed as a positive solution or a negative one for shareholders.

You would think that a deal that is $500m better than the current one would be viewed more positively, but we don't know how they plan on skinning us shareholders alive yet

The roller coaster ride continues.....

 

[Largesse]

hello BBI gamblers,


hope you are all prepared. day of reckoning is cometh.


Regards,

Largesse

 

[$$Punt$$]

hello BBI gamblers,


hope you are all prepared. day of reckoning is cometh.


Regards,

Largesse

Experience says BBI will spike in the first hour of trading when it reopens with a wide range of price movement during the day. Hope you all make some money and don't be too greedy. Good luck

 

[seen]

my punt is on BBI rising on the first day due to mixed signals and high volumes attracting many punters. but it is probably going to drop as volumes will probably be made up of traders.

just my silly guess and

 

[TheAbyss]

The new offer can only have a positive effect. Two bidders at the table is better than one. Even if it only means marginally less dilution it is still positive. Not a stock for me but holders can be happy with a competitive bid.

Wonder if the two bidders are privy to what the other bid is?