BBI - Babcock & Brown Infrastructure

Everyone's personal position and/or portfolio goals may be different Fuzzie.

Some may have bought in at 4c, so then 7c represents a opportunity to lock in profits.

Others may actually incur a capital loss in order to offset capital gains tax liabilities incurred in other trades.

EDIT: some might be heading for a margin call. You never know.

awg said:

The large debt profile of BBI would scare away many investors, as it has already.

Does raise the intriguing possibility of a takeover offer.

I have no doubt that some serious equity players would have at least run a ruler over this one

People may agree or not with BBs analysis, but would he be the only person undertaking this?

I doubt it

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Why would a take over be considered when the assets could possibly be purchased directly?

I would have thought a preferred option would be to purchase assets and the purchaser retains their own business entity? The BBI name isnt worth a heck of a lot in goodwill i would have thought?

Not trying to downramp anything here just interested to learn why a take over would be considered.

BBI/BEPPA traded well today in pretty average market conditions.

Global Macro factors still playing on my mind though (US Earnings and Econo Reports), will prob look to enter early-mid next week, assuming things play out like i expect them to over the next few days

Hopefully i get a bit of a pull back in BBI/BEPPA price. If i'm lucky

Largesse said:

Hopefully i get a bit of a pull back in BBI/BEPPA price. If i'm lucky

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Looks like your wish is coming true. I do not expect much joy this week, unless my 'Christmas Kev' $900 stimulates my stocking.

Dow target is 6900 for me, so i'm not really counting any chickens yet...

Realistically i want to enter BBI/BEPPA at around 6c or lower on BBI, and 7.5 or lower on BEPPA.

I guess we'll see how it plays out over this week

cpsharky said:

G'day BB, HY and all,

I've been trying to do a simple valuation spreadsheet for BBI, spurred on by BB/Melua from another place. I am going to go out on a limb here and say that BBI don't publish clear book values at asset level. There is some info on the value of various concessions etc, but no assurance that this represents full asset value. I am an amature at accounting - having done it at school - but at least I know the basics.

Anyway, book values aren't that interesting and are not a good indication for calculating NTA as they represent historical prices. IMVHO it would be better to use asset level EBITDA multples to estimate asset values and then subtract all debt to arrive at a possible liquidation figure.

So, here is what I come up with assuming a conservative EBITDA muliple of 11X can be obtained for each asset. I used the most recent 6 month EBITDA figures from the investment pack. Note we are expecting much more than this caculates for DBCT.

I have to put in an EBITDA multiple of 9 before Beppa is in danger.

I welcome all input. I would like to make this more accurate.

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Sharky,
To get a realistic EBITDA figure, you probably need to key in 2009/10 earnings as the new financial year is only two and a bit months away.

nathanblack said:

what if they have over estimated the capacity? thats all im saying, i'd like to see them achieve capacity first. its a buyers market and as a holder of BEPPA I prefer to be ultra conservative in my figures.

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Once the capacity is built, they get a regulated income based on that capacity. It doesn't matter if not one ship visits the port to pick up coal. BBI are guaranteed a return on the expanded capacity. Also, the users have been screaming for more capacity for a number of years now.
Once DBCT is at full capacity, it is safe to lock in revenue forecasts based on that capacity.

PS. Apologies to nathan and also to Largesse if my tone was aggressive. My reply wasn't to your post Largesse but it doesn't excuse my tone. We are all here to learn and whilst I still have a lot to learn about BBI, I do have more knowledge than others and sometimes I get frustrated with what I perceive to be basic questions. I need to be more tolerant.

Sharky,
These are ABN Amro's EBITDA forecasts for 2009/10. I think they are a tad conservative but feel free to plug those numbers in and see what you come up with.

Powerco $84M
IEG $82M
NGPL $256M
AETD $213M
CSC $19M
DBCT $224M
PD Ports $94M
Euroports $90M
Westnet Rail $114M
Corporate Fees -$30M (that's a negative $30M)

Thanks Banksa.

Here is the analysis using the Amro figures. Hope the debt figures are correct?
Again, I have left out the coporate overhead because I am interested how safe Beppa is in the event of a liquidation. Not particularly interested in a takeover figure.

I have again used a EBITDA multiple of 11 to estimate asset values. Should be very conservative in the case of non-fire asset sales.

May as well have a crack at a NAV using this technique. This time I'll use EBITDAx12 as a fair but not optimistic guess at asset values and I'll take out the coporate overheads, because we are assuming the company stays together.

This produces a figure higher than that obtained using book values. (2.4bill from memory).

banska bystrica said:

Once the capacity is built, they get a regulated income based on that capacity. It doesn't matter if not one ship visits the port to pick up coal. BBI are guaranteed a return on the expanded capacity. Also, the users have been screaming for more capacity for a number of years now.
Once DBCT is at full capacity, it is safe to lock in revenue forecasts based on that capacity.

PS. Apologies to nathan and also to Largesse if my tone was aggressive. My reply wasn't to your post Largesse but it doesn't excuse my tone. We are all here to learn and whilst I still have a lot to learn about BBI, I do have more knowledge than others and sometimes I get frustrated with what I perceive to be basic questions. I need to be more tolerant.

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No worries, Banksa, i'm sorry for coming back at you so hard, was probably out of line myself a bit there.

On a more important note, given the quality of the DBCT asset, are we sure that selling it off to pay down debt is the best option for BBI over the longer term. Sure, it will make alot of security holders happy in the short term as their shares will undoubtedly rise as the debt discount is lowered but do we really want to be sacrificing such a quality asset. EPS will take a bit of a knock with out DBCT on the books..

I'd be looking to offload lower quality assets now, even if we had to accept a SLIGHTLY lower multiple for them.

Largesse said:

On a more important note, given the quality of the DBCT asset, are we sure that selling it off to pay down debt is the best option for BBI over the longer term. Sure, it will make alot of security holders happy in the short term as their shares will undoubtedly rise as the debt discount is lowered but do we really want to be sacrificing such a quality asset. EPS will take a bit of a knock with out DBCT on the books..

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In a perfect world where we didn't have the refinancing risk I would love to see BBI keep dbct, However we have to clear corp debt to make sure we don't default if the lenders decide to not allow BBI to refinance.

DBCT is a fantastic asset, But there is heaps of good assets out there. If we can sell DBCT and get BBI back on track we will be able to take advantage of growth prospects in the future.

BB, no offense taken. i love your work.

as for the last couple of posts, BBI have never said that they intend to sell 100% stake. no doubt they will have many offers varying from part ownership to full. with a premium paid for 100% control. its up to management to sift through the offers and determine whats best.

what should we take from todays announcements regarding asset performances and sales progress?
some assets seem a bit flat but interest in them seems high and that dates are roughly what has been said previously. didnt seem to do much to the share price one way or another, so perhaps not much to be read into on this one.

Pages 29 and 30 of the SPARCS announcement provides some sobering information of the amount of debt to be re-financed in the next eighteen months.

Asset level debt summary
The majority of BBI’s assets have non-recourse financing and in most cases are secured against the operating assets of the respective business. There is no cross collateralisation of the asset level debt between any of BBI’s assets or with BBI corporate debt. However, any asset level event that restricts cash flow from the asset to the BBI corporate level will have a negative impact on the BBI corporate debt ratios and could potentially lead to a financial covenant breach at the BBI corporate debt level.
The aggregate principal amount of BBI’s proportionate share of asset level debt facility limits as at 31 December 2008 was AUD9,600 million, of which an equivalent of AUD1,446 million matures in the period from 1 April 2009 to 31 December 2010 (calculated on a proportionally consolidated basis). BBI intends to refinance the majority of this debt prior to the maturity date, however given current conditions
in global credit markets, there is a high degree of uncertainty whether BBI will be able to successfully
refinance this debt.
If BBI is unable to refinance maturing asset level debt, it may have negative implications including the winding up of the relevant asset, which may result in no further cash flows being received from the asset with adverse consequences in respect of the financial covenants contained in the Deed of Common Provisions. This could potentially lead to an event of default under the BBI corporate debt facilities and could potentially lead to the winding up of the Corporate Borrowers and the BBI Guarantors, including BBINNZ, BBIL, BBIS and BBI Finance Pty Limited.
The table below details the breakdown of BBI’s proportionate share of asset level debt facilities maturing
in the period from 1 April 2009 to 31 December 2010 in both local currency and AUD equivalent (millions) by month of maturity by asset.

Dampier to Bunbury May 2009 AUD 4 4
Natural Gas Pipeline September 2009 AUD 96 96
WestNet Rail June 2009 AUD 19 19
Multinet Gas June 2009 AUD 4 4
Network July 2009 AUD 27 27
PD Ports July 2009 £ 100 208
BBIPAL (WaterContainer Transport and Tarragona Port Services)
August 2009 EUR 51 102
Powerco August 2009 $NZ 109 90
August 2009 $NZ 67 55
April 2010 $NZ 42 34
WA Gas Networks September 2009 AUD 15 15
September 2010 AUD 148 148
BBI Finnish Ports October 2009 EUR 88 175
International Energy
Group
January 2010 £ 5 10
Benelux Port
Holdings (Manuport
and Westerland)
November 2010 EUR 225 449
Cross Sound Cable December 2010 $US 6 9
Total 1,446

As we have always known, BBI needs a stable global banking system. The assets are great but it only takes one rogue bank to pull the pin. Having said that, I topped up with a few more BEPPA today.
Looking at the debt repayment schedule again. The following are the larger amounts to be re-financed:

PD Ports July 2009 £ 100 208

BBIPAL (WCT and Tarragona PS) August 2009 EUR 51 AUD 102

Powerco
August 2009 $NZ 109 AUD 90
August 2009 $NZ 67 AUD 55

DTB Natural Gas Pipeline September 2009 AUD 96 96

BBI Finnish Ports October 2009 EUR 88 AUD 175


WA Gas Networks September 2010 AUD 148 148

Benelux Port Holdings (Manuport and Westerland)
November 2010 EUR 225 AUD449

Doesn't look too bad.

Well everyone has gone very quiet on here. Was it my last post or something else? zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

banska bystrica said:

Well everyone has gone very quiet on here. Was it my last post or something else? zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

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I think everyone is int and see mode. I havnt read the annoucement in full yet but your quick exert covering the debt levels and refinancing dates isnt too pleasing.

There is a heap of individual deals that need to be refinanced there and as you said all it takes is difficulty to refinance one and things can fall apart.

Regarding refinancing difficulties, the question in my mind is - will other lenders take action to avoid a covenant breach if one lender wants to pull the plug? That is, would it be possible that many of BBIs lenders would be fearful of the consequences of a covenant breach and thus step in to avoid it if necessary?

cpsharky said:

Regarding refinancing difficulties, the question in my mind is - will other lenders take action to avoid a covenant breach if one lender wants to pull the plug? That is, would it be possible that many of BBIs lenders would be fearful of the consequences of a covenant breach and thus step in to avoid it if necessary?

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I intend upon digesting the announcements this weekend and will post any my views or commentary unless these have already been covered off. Even then I just expect this to show that its just "steady as she goes".

BB-sorry I did not participate in the homework exercise, but then I don't know about what happens elsewhere because I am never there

Sharky-Love the look of those numbers using EBITDA of 12!

Cheers

I am more worried about the individual deals. I am hopeful that the money not paid to dividends in BEPPA and BBI will be able to wipe out a large number of the smaller debts facilities.

I'd like to think the following AT LEAST can be paid from cash reserves in this calendar year:
Dampier to Bunbury May 2009 AUD 4 4
WestNet Rail June 2009 AUD 19 19
Multinet Gas June 2009 AUD 4 4
Network July 2009 AUD 27 27

That's only $54M, but that is then unencumbered asset which can boost the balance sheet as there is reduced liability. I am hopeful that this will calm the nerves of the current debt facility providers and show that progress has been made in the face of difficult conditions.

On BEPPA alone there is approx $32.625M worth of unpaid interest distributions that they have to play with. Along with no dividends on BBI, I think it reasonable to assume these 4 assets could be paid off from cash.

Obviously, the larger amounts will need re-financing. I do not think a capital raising at this time would add value for shareholders, in fact I think it would be detrimental. The dilution alone on the current SP would be horrific.