BBI - Babcock & Brown Infrastructure

banska bystrica · 14 July 2009

Administration is worst case scenario but in all honesty, it is not probable. In fact, why would they be put into administration? Look at BBP. A basket case really when compared to BBI and still the banks have elected to not go down the formal administration path.

BBI has never breached a debt covenant.
BBI has never missed an interest payment to a bank.
BBI's assets are generating sufficient surplus cash to cover interest easily.
PD Ports may lose 25% of revenue if the Corus situation remains unresolved. Tesco's new facility will add about 25% to revenue.

BBI's NAV is approx 80c per security. The market discounts that by 90%.

BBI equity holders do run the risk of further dilution if no cash is available in November to deal with SPARCS.

BEPPA holders need to see 4 billion dollars wiped from the NAV before BEPPA is worthless. I look at all the assets and I ask the question. Where do we get a loss of $4B in equity?
I can find possibly $1B in total, maybe $1.5Bn if I am tough on them but $4Bn? Give me a break.

investorpaul · 14 July 2009

banska bystrica said:
Administration is worst case scenario but in all honesty, it is not probable. In fact, why would they be put into administration? Look at BBP. A basket case really when compared to BBI and still the banks have elected to not go down the formal administration path.

BBI has never breached a debt covenant.
BBI has never missed an interest payment to a bank.
BBI's assets are generating sufficient surplus cash to cover interest easily.
PD Ports may lose 25% of revenue if the Corus situation remains unresolved. Tesco's new facility will add about 25% to revenue.

BBI's NAV is approx 80c per security. The market discounts that by 90%.

BBI equity holders do run the risk of further dilution if no cash is available in November to deal with SPARCS.

BEPPA holders need to see 4 billion dollars wiped from the NAV before BEPPA is worthless. I look at all the assets and I ask the question. Where do we get a loss of $4B in equity?
I can find possibly $1B in total, maybe $1.5Bn if I am tough on them but $4Bn? Give me a break.

Great summary - basically outlines the entire BBI/BEPPA situation in one paragraph.

As you mentioned it is positive that the banks are working with BBP, as you would expect if BBI got into a similar situation that they would do the same.

Besides asset sales there are only two concerns the dilution due to SPACS and the Corus issue.

Both issues are easily solves with the sale of DBCT as the SP would rise leading to less dilution and the Corus issue would still be a concern but not critical.

Unfortunately it is still a waiting game with prob no more answers for between 1 and 3 months. During which time the SP movements are largely irrelevant (unless you want to trade continuously).

persistentone · 14 July 2009

hardyakka said:
There is a heck of a lot of focus on administration...I put the chances of it at less than 20%.

The ASX listing Rules do not provide specific guidance on what is "significant", however the rule of thumb is anything that has a 5% impact on revenue or capital. PD Ports drop in value has not been disclosed under Rule 3.1, so from this I assume any impact is less than the benchmark mentioned. This was reaffirmed by the chat I had with Helen a few weeks back.

If any person is really worried about administration as a major risk they should get out of the kitchen

Cheers

I disagree. The investment is interesting even if they undergo administration or liquidation. And if they actually did announce a possibility of voluntary administration and everyone started running for the doors, it would get even more interesting as an investment.

investorpaul · 14 July 2009

persistentone said:
I disagree. The investment is interesting even if they undergo administration or liquidation. And if they actually did announce a possibility of voluntary administration and everyone started running for the doors, it would get even more interesting as an investment.

??? Are you referring to the fact that in the event of administration that there is the strong possibility that there would be something (substantial) left over for BEPPA holders?

And if you believe this does it really matter what happens?

persistentone · 14 July 2009

investorpaul said:
??? Are you referring to the fact that in the event of administration that there is the strong possibility that there would be something (substantial) left over for BEPPA holders?

And if you believe this does it really matter what happens?

Yes, I'm referring to the fact that even in liquidation BEPPA should see enough recovery to generate a profit.

It matters what happens because a liquidation probably produces a significantly worse result than an administration that sees them come out as a going concern, with BEPPA intact. I would rather see BEPPA made whole and get the compounding interest payments on top of that.

Since no seems to believe that administration is a likely outcome, I guess that's a conversation I'm probably not going to have much luck having here.

drsmith · 14 July 2009

I'm of the belief that this will end with administration and have stated so in the past. This is high risk stuff.

Debt covenants, interest payments and cash flow are not what is of maximum concern to BBI's lenders in this tighter credit environment. It's the overall gearing.

investorpaul · 14 July 2009

persistentone said:
Yes, I'm referring to the fact that even in liquidation BEPPA should see enough recovery to generate a profit.

It matters what happens because a liquidation probably produces a significantly worse result than an administration that sees them come out as a going concern, with BEPPA intact. I would rather see BEPPA made whole and get the compounding interest payments on top of that.

Since no seems to believe that administration is a likely outcome, I guess that's a conversation I'm probably not going to have much luck having here.

I think most people on this thread see receivership/administration as a last/distant resort. A very small possibility.

I also think most people would write off their investment as a loss straight away (in their mind, not for tax reasons) if that were to happen. Simply because it takes so long for the process to conclude.

If at the end of it all they got back x number of cents on BEPPA face value they would of course be happy and be thankful for it (but at the same time they would not be banking on it happening). Ie you cant be buying BBI/BEPPA hoping for a 500 to 1000% return and expect little risk.

The discussion on whether or not this all occurs is probably a little hard to have (in terms of informed debate). It will really come down to what happens behind the corporate doors of BBI, the banks and the interested parties looking to buy assets.

If assets fail to sell, BBI then needs to plead with the banks to roll over funding, continue loans, etc, if the banks dont play ball then its game over. Sitting on the sidelines here we can only gather the information after it is reported (ie after it has happened), after that occurs assuming a good announcement BEPPA will not be 10-11cents.

In the mean time we can only make projections based on our research to conclude the likely sale price, the impact that will have on debt levels and the willingness of banks to extend other lines of credit etc. If at the end of all this (which the 85 odd pages of this thread have discussed) people believe that assets will be sold, the company will survive, etc than investment at 10cents looks good. On the same hand their are others (who are entitled to their view based on their research) who may come to the conclusion that at 10cents the company is doomed and it is all over.

What happens next??? we just have to wait.

nathanblack · 14 July 2009

i wonder if BBI are considering JV instead of straight asset sale. it would dilute the crap out of BBI ord shares but could offer an alternative to selling DBCT outright.

love to know the directors thinking at the moment and what offers are on the table. i wonder if we will ever know what choices they had regarding DBCT or if we will only be told about the final "we sold X% for $Ybil"

investorpaul · 14 July 2009

nathanblack said:
i wonder if BBI are considering JV instead of straight asset sale. it would dilute the crap out of BBI ord shares but could offer an alternative to selling DBCT outright.

love to know the directors thinking at the moment and what offers are on the table. i wonder if we will ever know what choices they had regarding DBCT or if we will only be told about the final "we sold X% for $Ybil"

Search Valad property trust announcements on the ASX, they did a JV a week or two ago.

Basically it involved their Euro properties and a bank (I think RBS) forming a JV with Valad contributing the property part and the Bank contributing equity/debt. I didnt read into it to much myself, but I believe that was the jist of it.

Not sure if something similar could happen with BBI seeing as they need cash to reduce corporate debt, not so much the debt of the individual assets/holding vechiles and any JV partner would want their equity kept with the asset as the deal would obviously be done to reduce that assets overall gearing level.

banska bystrica · 15 July 2009

drsmith said:
I'm of the belief that this will end with administration and have stated so in the past. This is high risk stuff.

Debt covenants, interest payments and cash flow are not what is of maximum concern to BBI's lenders in this tighter credit environment. It's the overall gearing.

Overall gearing is less than 70%. I would be interested in some real figures from you to justify your comment that "I'm of the belief that this will end with administration and have stated so in the past."

Always happy to hear the contra view to mine but it has to be backed up by credible figures. Anyone can say I believe this or I believe that. Later I will give you guys some stress test figures that clearly show there is still net equity in BBI even in a worst case scenario and that includes the repayment of all debt and all hybrids (SPARCS and BEPPA).

I await your figures drsmith that justify administration and if you haven't got solid evidence then what is the point in even commenting on the stock.

drsmith · 15 July 2009

banska bystrica said:
Overall gearing is less than 70%. I would be interested in some real figures from you to justify your comment that "I'm of the belief that this will end with administration and have stated so in the past."

Always happy to hear the contra view to mine but it has to be backed up by credible figures. Anyone can say I believe this or I believe that. Later I will give you guys some stress test figures that clearly show there is still net equity in BBI even in a worst case scenario and that includes the repayment of all debt and all hybrids (SPARCS and BEPPA).

I await your figures drsmith that justify administration and if you haven't got solid evidence then what is the point in even commenting on the stock.

Gearing at (or near) 70% in the present econimic environment speaks for itself.

You have yourself described BBI as being in quasi administration. What do you mean by that comment? Are you suggesting it's lenders are allready calling the shots?

I also wonder why you care so passionately about what I think. It is after all only a company and not a faith.

banska bystrica · 15 July 2009

drsmith said:
Gearing at (or near) 70% in the present econimic environment speaks for itself.

You have yourself described BBI as being in quasi administration. What do you mean by that comment? Are you suggesting it's lenders are allready calling the shots?

I also wonder why you care so passionately about what I think. It is after all only a company and not a faith.

Who said I cared "passionately" about what you think?

Gearing of circa 70% on infrastructure assets with a good portion regulated does not imply administration.

Quasi administration means they are doing themselves what an administrator would be doing anyway. Selling assets to pay down debt.

Please provide financial figures that back up your view that BBI will end up in administration. I will make further comment after I see your figures.

banska bystrica · 15 July 2009

BEPPA holders: What would you say to the following if it were offered to you some time in 2009/10 after DBCT and PD Ports are sold?

Convert every BEPPA held into 35c cash and 2 BBI securities.

Hypothetical of course but would be interested in the thoughts of BEPPA holders. Remember of course that if that proposal was passed, it would indeed help the price of BBI as well as any threat of massive dilution in 2012 disappears. This hypothetical proposal dilutes BBI by another 1.6Bn shares but also eliminates $800M worth of debt.

Personally I would vote YES.

drsmith · 15 July 2009

banska bystrica said:
Gearing of circa 70% on infrastructure assets with a good portion regulated does not imply administration.

If that's the case then why have BBI's directors become quasi administrators (as you describe it) in trying to sell essets to pay down debt and why have they ceased disrtribution of income/interest to security holders ?

Perhaps they see the risk of administration as being greater than 5%.

Largesse · 15 July 2009

banska bystrica said:
BEPPA holders: What would you say to the following if it were offered to you some time in 2009/10 after DBCT and PD Ports are sold?

Convert every BEPPA held into 35c cash and 2 BBI securities.

Hypothetical of course but would be interested in the thoughts of BEPPA holders. Remember of course that if that proposal was passed, it would indeed help the price of BBI as well as any threat of massive dilution in 2012 disappears. This hypothetical proposal dilutes BBI by another 1.6Bn shares but also eliminates $800M worth of debt.

Personally I would vote YES.

You really need to stop with these types of fantasy posts Banksa, they destroy your credibility as a poster.

Blue sky hypotheticals are the domain of the ramper.

investorpaul · 15 July 2009

banska bystrica said:
BEPPA holders: What would you say to the following if it were offered to you some time in 2009/10 after DBCT and PD Ports are sold?

Convert every BEPPA held into 35c cash and 2 BBI securities.

Hypothetical of course but would be interested in the thoughts of BEPPA holders. Remember of course that if that proposal was passed, it would indeed help the price of BBI as well as any threat of massive dilution in 2012 disappears. This hypothetical proposal dilutes BBI by another 1.6Bn shares but also eliminates $800M worth of debt.

Personally I would vote YES.

BBI share price would need to be approx 20cents.

I would then expect the following:

35 cents for my BEPPA
2 BBI shares (issued at 20c) but expecting price to drop to 15 cents, therefore in reality 30cents worth of BBI.
Giving a total value of approx 65c per BEPPA.

I would be very happy with that.

Also BB are you able to attach that spreadsheet with stress test figures, im really interested to see it, thanks

bellenuit · 15 July 2009

banska bystrica said:
BEPPA holders: What would you say to the following if it were offered to you some time in 2009/10 after DBCT and PD Ports are sold?.........

If they had got a good price for those 2 assets and recourse debt had been paid out, I would NOT accept the offer.

To make NOT accepting more attractive is the fact that every BEPPA holder that accepts the offer is allowing BBI to reduce $1.10 (assuming $0.10 unpaid dividends) of debt for just $0.35. The increased BBI dilution would not effect me as a BEPPA holder.

So assuming they can make an offer that doesn't require 100% acceptance, I would decline the offer, but hope that as many others as possible accept it.

nathanblack · 15 July 2009

drsmith said:
If that's the case then why have BBI's directors become quasi administrators (as you describe it) in trying to sell essets to pay down debt and why have they ceased disrtribution of income/interest to security holders ?

Perhaps they see the risk of administration as being greater than 5%.

perhaps the 70% gearing uses historical figures and projections? maybe BBI know there are write downs and earnings will be lower. perhaps the true gearing is higher than 70% ?

Mitsimonsta · 15 July 2009

bellenuit said:
So assuming they can make an offer that doesn't require 100% acceptance, I would decline the offer, but hope that as many others as possible accept it.

I would turn it down also. Absolute rubbish deal to offer. I would get more out of a liquidation (on my own research).

As far as I am concerned, I am looking for BEPPA to mature and then accept reset terms. The cashflow that would result would be nearly be 100% p.a. return on capital invested once BBSW gets closer to 5% and the bonus component of interest up to around 2.5% as that is what is going to be required to get reset terms passed.

This of course would need to have the EPS terms changed so that distributions could not be deferred or suspended, and failure to pay a distribution would be enough to trigger a conversion event - either to the equivalent of BBI securities plus distributions owing in cash, or wholly in cash.

Obviously, as long as it was a non-binding election per BEPPA holder to accept 35c + 2x BBI, if you wanted to do that, it is your business. I doubt that there would be a simple majority accepting those terms to dissolve BEPPA.

----

I have 30,911 BEPPA @ 8.4c average, for a total investment of $2596.

If BEPPA matures and reset terms are offered of 250bps above BBSW (I am going to guess at about 5% in 2012), then the annual return for 30,911 @ 7.5% = ~$2320 / 89.4% p.a. return.

Only 15 months of those terms I have my money back. Then I would be happy to look at Shares & Scrip settlement.

mark_au · 15 July 2009

banska bystrica said:
BEPPA holders: What would you say to the following if it were offered to you some time in 2009/10 after DBCT and PD Ports are sold?

Convert every BEPPA held into 35c cash and 2 BBI securities.

Hypothetical of course but would be interested in the thoughts of BEPPA holders. Remember of course that if that proposal was passed, it would indeed help the price of BBI as well as any threat of massive dilution in 2012 disappears. This hypothetical proposal dilutes BBI by another 1.6Bn shares but also eliminates $800M worth of debt.

Personally I would vote YES.

Id certainly consider that deal, though it would depend upon the BBI sp at that time and the general recovery of the company

BBI - Babcock & Brown Infrastructure

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