BBI - Babcock & Brown Infrastructure

[Tysonboss1]

Several Hybrids paying divs are currently trading well below 40c in the dollar, even investment grade hybrids are at big disc to face value. An okay outcome on DBCT, Euroports and PD ports may still see BEPPA trading around 30c. That is still a great price from here, but debt instruments will not trade near their face value for a while yet.

Having researched a few hybrids, i think the beppa terms are one of the best,

ie, cumulative distributions etc,

Some of them are trading at big discounts because there management have the right to cease distributions without having them acumulate.

 

[Mitsimonsta]

You got it. BEPPA was a *loan* to BBI. BEPPA holders ARE CREDITORS to BBI, standing in line unsecured at the bottom of the creditor pecking order.

That's it. BEPPA are on the Creditors side of the books, with SPARCS holders above them, then the senior debt above that (banks). BEPPA holders, while being at the bottom of the creditor ladder, whould have to be paid IN FULL (face value + any distributions owing) before vanilla BBI holders will see a cent.

Let's go with your statement that the company is liquidated for benefit of creditors. So BBI goes into receivership. The receiver sells DBCT, PD Ports, and Euroports, which were going to sell anyway. From those proceeds, all corporate debt is repaid in receivership. Now what?

The non-recourse lenders will have called in their loans. They will be due and payable, so the entire assets of BBI would be sold in liquidation.

Is there a way in receivership that BBI management can show their ability to continue as a viable entity from that point on and simply exit receivership without any additional liquidations? In the U.S. we call such situations a Chapter 11 bankruptcy.

Chapter 11 is a completely American thing. There is no such option available in Australia.

What will happen is that BBI would go into receivership, and then all financiers would call in their loans as due and payable in full. This includes SPARCS and BEPPA holders (in a round about way).

And the real question for me is in receivership would all of the non recourse lenders come out of the woods demanding liquidations of their assets?

In one word, yes. They would do this to protect the capital they have lent.

Let's start thinking about the end game and what BBI looks like in receivership, because BBI EPS might be a decent speculation even for that scenario.

Even with 20c paid (10c Distribution deferred + 10c of face value) in the event of liquidation, it's not a bad return on my average buy price of 8.4c.

I think it would be higher than that - I think the face value of at least 50c should be able to be paid with the quality of the assets that are held by BBI. The question would be how long it would take to receive that money.

In Australia, are you allowed to trade on the stocks of companies that are in receivership? In the U.S., it is quite common to see a company declare a Chapter 11 bankruptcy and have the stock get a new symbol immediately, but continue to trade for weeks or months.

No. Stocks are put into trading halt once they go into receivership, and IF they come through that without being liquidated, they can commence trading again.

If they do not make it through receivership, then they are de-listed and all shares are lost.

What I want to know is if BBI put itself into receivership, and the price of the BBI EPS shares started to crash, would we even get a chance to buy them? Or would the shares of both BBI and BBI EPS be immediately pulled from the market and no trading would be allowed?

It could go into voluntary receivership, yes. I would expect that in most cases, the symbols would go into a trading halt.

 

[persistentone]

The non-recourse lenders will have called in their loans. They will be due and payable, so the entire assets of BBI would be sold in liquidation.


Chapter 11 is a completely American thing. There is no such option available in Australia.

What will happen is that BBI would go into receivership, and then all financiers would call in their loans as due and payable in full. This includes SPARCS and BEPPA holders (in a round about way).


In one word, yes. They would do this to protect the capital they have lent.

Put yourself in the position of the non recourse lenders. Why would you prefer to have this asset sold rather than have BBI continue paying the loan? You are in business to make loans, and you have a company that can make the loan payment.

The Australian system cannot be this inflexible? Doesn't the company have any ability to work out settlements with lenders to emerge from receivership intact?

 

[Mitsimonsta]

Put yourself in the position of the non recourse lenders. Why would you prefer to have this asset sold rather than have BBI continue paying the loan?

I would want to protect the capital I have already loaned them, so I could get it back and loan it to someone else.

The Australian system cannot be this inflexible? Doesn't the company have any ability to work out settlements with lenders to emerge from receivership intact?

The simple fact is that the lenders would call in the loans. I think you will find most loan documents will have a clause in then stating that if the borrower goes into receivership, then the loan is due and payable in full immediately.

Of course, settlements/offers can be made, however there would want to be a very good plan for going forward before that would happen. The main thing to remember is that there is no legal requirement to 'come to an arrangement'.

 

[fuzzie]

Put yourself in the position of the non recourse lenders. Why would you prefer to have this asset sold rather than have BBI continue paying the loan? You are in business to make loans, and you have a company that can make the loan payment.

The Australian system cannot be this inflexible? Doesn't the company have any ability to work out settlements with lenders to emerge from receivership intact?

This appears to be what has happened in the case of another of the Babcock and Brown satellites. B&B Power (BBP) has its finances in more of a twist than BBI. It breached debt covenants in May and went into a trading halt. After 'discussions' with it's bankers they have been granted an extended renegotiation period to the end of July and the stock is trading again.

Many of the BBI bankers are probably the same as BBP's bankers.

 

[persistentone]

This appears to be what has happened in the case of another of the Babcock and Brown satellites. B&B Power (BBP) has its finances in more of a twist than BBI. It breached debt covenants in May and went into a trading halt. After 'discussions' with it's bankers they have been granted an extended renegotiation period to the end of July and the stock is trading again.

Many of the BBI bankers are probably the same as BBP's bankers.

That's a very relevant insight, thanks.

(That's really all I had to say but this silly bulletin board software makes me add filler text

 

[persistentone]

I would want to protect the capital I have already loaned them, so I could get it back and loan it to someone else.


The simple fact is that the lenders would call in the loans. I think you will find most loan documents will have a clause in then stating that if the borrower goes into receivership, then the loan is due and payable in full immediately.

Of course, settlements/offers can be made, however there would want to be a very good plan for going forward before that would happen. The main thing to remember is that there is no legal requirement to 'come to an arrangement'.

I am with you on most of this. I agree the loan provisions for non recourse loans will all say the loan is due immediately in event of receivership.

Now in the real world, if you are a bank, and you think there is any chance the asset sale won't cover your loan amount, you are going to strongly prefer to find a way to keep that borrower paying off its loan.

And even if the asset sale would cover your loans, if you believed that BBI could continue to pay the loan why wouldn't you prefer that outcome to a lengthy asset sale process? Better to make your interest, leave your books intact, and make money. It's less hassle for the bank.

The case that is less clear would be if the bank thought it could steal the asset cheap and turn a profit reselling it. I don't know enough about the loan documents or the assets to say how relevant that concern is.

In our case, BBI without its corporate debt has very good coverage for all of its non recourse loans. I just cannot believe that those lenders would prefer to lose good business over preserving the loan, as long as BBI can demonstrate its liquidity. And given the quality of the assets, BBI can demonstrate its ability to pay easily. As a lender, I would get a lot of confidence from the assets as a pool, knowing that weakness in any one asset's operating cash flows is supported by surplus cash flows from the other assets. I would feel secure with this group of assets. And I would rather keep the loan intact and make money on it than introduce additional risks by selling assets, and guarantee that I lose my interest income.

This is why I want to find a good Australian bankruptcy attorney. Maybe in the real world my idealism never happens. Or maybe it is the most common case. I just don't know, and for me this is the key question in evaluating what happens in receivership. As a BBI EPS holder I *much* prefer to hold my BBI EPS loan through the receivership and have BBI come out functional on the other side. I would hate to see them get broken up and then two years later get paid 20 cents on the dollar. Yes, that's a profit, but it's less of a profit, and also would be a shame for BBI as a business when I strongly sense they are at the edge of a turn here and with those asset sales they can make it.

 

[bellenuit]

I am with you on most of this. I agree the loan provisions for non recourse loans will all say the loan is due immediately in event of receivership.

I know we should plan for all contingencies, but isn't receivership only a remote possibility at this stage?

As far as I know, Euroports is the only immediate concern and wouldn't any failure there only involve Euroports itself, not BBI as a whole. Isn't it all non-recourse debt, although I'm not sure about the 35M Euro loan and the put option obligation.

Otherwise we seem to be able to meet debt obligations, but BBI holders (I'm BEPPA only) may have to worry about dilution when SPARCS comes up for conversion later this year.

 

[erasmus]

That's it. BEPPA are on the Creditors side of the books, with SPARCS holders above them, then the senior debt above that (banks). BEPPA holders, while being at the bottom of the creditor ladder, whould have to be paid IN FULL (face value + any distributions owing) before vanilla BBI holders will see a cent.


I thought that as SPARKS holders had voted no to BBI proposal that they have remained on an equal footing with BEPPA on creditor ladder.

 

[hardyakka]

There has been a lot of discussion about receivership etc, dont forget this is the worst possible case scenario and even in that situation I consider that BEPPA holders will come out of such a situation with at least 30% of their capital eventually returned.
The US and Australian systems are very different, the basic premise being Chapter 11 allows a company to trade out of difficulties, whilst the purpose of receivership is to liquidate assets to meet the claims of creditors. A company can continue operations, but only by agreement with the receiver.
But before BBI is "buried" by all this talk of receivership, step back a minute and look at the nature of the assets. Infrastructure assets are very long term investment propositions with effectively regulated read guaranteed income streams. This is to enable the service to be provided, maintained, funded and the return of a reasonable profit, not a super profit but acceptable profit to encourage investors. If a reasonable profit was not forthcoming then no one would invest and the burden would fall to the state/federal governments.
BBI has some blue chip assets and IMO the smart money will be evaluating these with a longterm investment horizon in mind, a firesale at any price is in no ones interest, especially that of the creditors. IMO whoever ends up with DBCT will be smiling over their beer in a few years time at having got the bargain of the century.
When you look at PD Ports, its problems with Corus are short term. Only once have I seen the positive of Tesco and possibly Aldi mentioned of late. Nowhere in the press or any discussion on pricing do you see any indication of the NET impact, ie loss of Corus less gain of Tesco.
I posted earlier a discussion that I had with Helen of IR. She basically said a material issue would be announced. Corus in isolation is material, but has anyone asked the question that it may not be material because of the NET impact. The same applies to press reports on the reduction in price of PD Ports. I am not even going to think of the positive that may eventually flow if Tata sues the Corus JV mob that walked, no doubt Corus has arrangements with PD Ports and it may eventually be entitled to compensation.
Now to turn back to receivership, I have posted before what I consider the inherent value of BBI is. Now I ask you, does anyone really see $3.5B of value (that is after allowing an impairment charge of $0.5B) evaporating from BBI? If this happens then the return to BEPPA will be less than a $1 per BEPPA.
My final observation is on the select/BB issue. Select, if you have something to constructive to contribute by all means post it. The next post I see of yours that is just petty sniping then I will just put you on ignore and would encourage others to consider similarly.
Cheers

 

[hardyakka]

Came across this:
New duel SNCF-Deutsche Bahn-Trenitalia

07-06-2009 16:32

The Babcock & Brown Infrastructure (BBI) investment and consultancy company plans to offer for sale its 49% quota of Swiss-Belgian railway operator Crossrail. The reason for this action was the debt reduction of mother-company Babcock & Brown (B&B), which is currently having financial difficulties. According to the press, so far, five companies have shown interest in the acquisition of Crossrail, which has been negotiating with BBI. These five companies include Deutsche Bahn, Ferrovie dello Stato (through Trenitalia) and SNCF, as well as Swiss private operator Hector Rail. Crossrail provides railway transport services between Italy, Germany, Belgium, Switzerland and Netherlands.

From what I can gather it seems to be a small part of Euroports.

Have a look at crossrail in the port of Antwerp news letter at the below.

http://www.havenvanantwerpen.be/portal/pls/portal/!PORTAL.wwpob_page.show?_docname=74003.PDF

Cheers

 

[persistentone]

I know we should plan for all contingencies, but isn't receivership only a remote possibility at this stage?

As far as I know, Euroports is the only immediate concern and wouldn't any failure there only involve Euroports itself, not BBI as a whole. Isn't it all non-recourse debt, although I'm not sure about the 35M Euro loan and the put option obligation.

Otherwise we seem to be able to meet debt obligations, but BBI holders (I'm BEPPA only) may have to worry about dilution when SPARCS comes up for conversion later this year.

On paper, receivership should not be necessary. In reality, what if the buyers of the key assets here (particularly DBCT) decide that they would just stall a purchase to put BBI into receivership, in order to obtain better terms from the receiver (who will care about the money more than the surrounding contract issues)? Generally, when companies are near the line of receivership all bets are off, and the malevolent actions of other companies can push them over the line.

Delaying DBCT puts BBI in receivership.

Potentially the PD Ports situation if not resolved soon puts them in receivership as well, because 25% decrease in EBITDA there may end up violating a covenant on corporate debt of $75M associated with PD Ports. The banks would then have an option to push them into receivership.

Yes, if everyone BBI is dealing with acts in good faith and pays quickly, we are going to come out of it fine. But if they hold back and stall for time, I see a storm coming and I'm not sure BBI will make it out of that.

And NOW is the time to think through what happens in the worst case, not after they are already in receivership!

 

[Mitsimonsta]

I thought that as SPARCS holders had voted no to BBI proposal that they have remained on an equal footing with BEPPA on creditor ladder.

They are actually ahead as it is the older debt and falls due before BEPPA.

The proposal that was voted down for reasons of conversion, it had nothing to do with the seniority of the debt. They are still subordinated convertible notes, but due to the vagaries of the Bank sweep, the undertaking not to pay any BBI EPS (BEPPA) or BBI dividends was waved as a carrot under SPARCS-holder noses in order to get them to vote for the first proposal. However, it was going to happen anyway as with the bank sweep in operation, they have no cash to pay it out anyway.

Please have a read though this PDF very carefully, and come back when you understand it.

The US and Australian systems are very different, the basic premise being Chapter 11 allows a company to trade out of difficulties, whilst the purpose of receivership is to liquidate assets to meet the claims of creditors. A company can continue operations, but only by agreement with the receiver.

Close, but not quite.

Administration is bringing in outside management to go through the books to determine if the business is a going concern. It will determine Income & Assets versus Liabilities and debt, and try to trade out of the difficulties (similar to Chapter 11 but it has nothing to do with bankruptcy). A company can appoint administrators themselves, or a debtor can ask the Supreme Court to appoint an Administrator if the debt falls due and remains unpaid. The administrators will attempt to pay off all outstanding and out-of-terms debts, and is usually done by reaching agreement with debtors (payment plans, cashflow analysis & budgeting).

I know, I work in a business which has been using outside consultants in order to do alot of these things, plus formulate plans and budgets for the future. It's really the Administration you have when you are not under Administration. Hasn't been alot of fun.

Receivership is usually brought about senior debtors. The purpose of this is to try and sell off Inventory and possibly even parts of the business (divisions, particular sites, anything like that) to pay debt. There may be a point where parts of the business are sold and what is left is strong and healthy, where it can return to it's normal operation. Not often though.

Liquidation is where all assets are sold to pay off debts. This usually occurs when the liabilities far outweigh the assets of the business. The aim is to get as much payment for the debts as possible in a reasonable amount of time.

My final observation is on the select/BB issue. Select, if you have something to constructive to contribute by all means post it. The next post I see of yours that is just petty sniping then I will just put you on ignore and would encourage others to consider similarly.

Don't even bother. Just report the post. If enough of his posts get removed and continues on his stupid and petty name-calling, hopefully the mods will ban his account(s).

 

[persistentone]

Close, but not quite.

Administration is bringing in outside management to go through the books to determine if the business is a going concern. It will determine Income & Assets versus Liabilities and debt, and try to trade out of the difficulties (similar to Chapter 11 but it has nothing to do with bankruptcy). A company can appoint administrators themselves, or a debtor can ask the Supreme Court to appoint an Administrator if the debt falls due and remains unpaid. The administrators will attempt to pay off all outstanding and out-of-terms debts, and is usually done by reaching agreement with debtors (payment plans, cashflow analysis & budgeting).

I know, I work in a business which has been using outside consultants in order to do alot of these things, plus formulate plans and budgets for the future. It's really the Administration you have when you are not under Administration. Hasn't been alot of fun.

Receivership is usually brought about senior debtors. The purpose of this is to try and sell off Inventory and possibly even parts of the business (divisions, particular sites, anything like that) to pay debt. There may be a point where parts of the business are sold and what is left is strong and healthy, where it can return to it's normal operation. Not often though.

Liquidation is where all assets are sold to pay off debts. This usually occurs when the liabilities far outweigh the assets of the business. The aim is to get as much payment for the debts as possible in a reasonable amount of time.

Thanks for adding these distinctions, and it looks like I was using the wrong terms. I guess in the worst case we would hope that BBI was put into voluntary administration, and that the administrator would see that BBI could function as a continuing business after corporate debt is paid.

What's not clear to me is whether the banks have clauses that allow them to put the company in receivership automatically if - for example - the company is in administration. Is that kind of thing possible?

It's not clear to me who takes priority in such situations: an administrator or a receiver? Can the company even have the two at the same time?

 

[erasmus]

Thanks mitsimonster,appreciate pdf.
You are right,I cannot see any terms in the proposal were to do with seniority of debt with sparks and beppa.
Are you saying in the event of bbi going into receivership that because sparcs is the older debt that it will rank ahead of Beppa?

 

[persistentone]

Yes, New Zealand Sparcs and New Zealand Bonds are ahead of BBI EPS in credit order. But that's only about AUD $250M between the two of them. It's not much relative to BBI EPS.

And if we get to the point where our seeing money return in BBI EPS during liquidation comes down to $250M, we are already in a serious world of hurt and would have shaved $2.5B off of equity.

So in the big picture I wouldn't sweat Sparcs or New Zealand Bonds.

 

[erasmus]

Thanks persistentone.
if BBI goes belly up whether sparcs is ahead of me or not will probably be the least of my worries.

cheers

 

[Mitsimonsta]

Hey persistentone, just had a thought on your point about the banks holding out on BBI in order to get their hands on quality assets cheaply and sell later for a handsome profit:

It isn't liquid enough.

Banks right now need cash and cash flow in order to lend. You are not going to be able to lend a Coal Terminal.

For things to get better, we need liquidity in the credit markets. What they will do by taking up assets like DBCT/PD Ports/Euroports/WestNet Rail is tie up large amounts of capital which will COST them money in the short term when their balance sheets will hurt he most from it.

In the current climate, I can't see any bank doing something like this without some serious backlash from shareholders.

 

[persistentone]

Hey persistentone, just had a thought on your point about the banks holding out on BBI in order to get their hands on quality assets cheaply and sell later for a handsome profit:

It isn't liquid enough.

Banks right now need cash and cash flow in order to lend. You are not going to be able to lend a Coal Terminal.

For things to get better, we need liquidity in the credit markets. What they will do by taking up assets like DBCT/PD Ports/Euroports/WestNet Rail is tie up large amounts of capital which will COST them money in the short term when their balance sheets will hurt he most from it.

In the current climate, I can't see any bank doing something like this without some serious backlash from shareholders.

I agree with that; banks don't want to speculate with assets. That's why I am arguing that BBI comes out of any potential administration functioning, and hopefully with BBI EPS intact. The non recourse lenders should probably prefer that outcome for reasons you specify and others.

What worries me is that the non-bank entities that are bidding for DBCT, PD Ports, and Euroports may try to stall their bids to pick up the assets cheaper. Those entities do want to buy low and sell high later. Stalling on those purchases could put us into administration.

 

[Viva_Las_Vegas]

Guys

A lot of bickering going on here.

Lets step back for a second and look at theses facts

1) Euroports is a minor hurdle in terms of the entire BBI asset portfolio. Up till now BBI has been repaying its debts with the sweep facility.

2) DBCT expansion is complete allowing for more volume

3) DBCT on the market with expansion complete and other expansions a possibility, with a 99 year lease DBCT is a ONCE IN A LIFETIME cash cow/golden goose.

4) Despite the GFC there are companies out there who are cashed up, passing up DBCT in this buyers market would be an oversight to say the least.

5) 100% sale of DBCT would cover debt, SP would go up, BBI could then capital raise. With that capital solve the BEPPA issue which is still 2.5 years away.


So despite sailing into a strong headwind and some choppy seas, I believe in BBI's LONG TERM survival.

I hold BEPPA