sorry for the dealy. I have been way for long weekend. I just had a look at prospectus to refresh myself with the facts:
http://www.brookfieldmultiplex.com/about/mulitplex-sites/sites-documents/
One of the key risks is that Directors can decide not to pay interest distributions. However, the parent Brookfield would suffer reputational damage if the subsidiary could indeed pay the coupon and simply chose not to. In fact, if Multiplex was profitable (which it seems to be), Directors in Australia might face action brought against them if they chose to not pay interest when they could afford to despite any wording in prospectus.
The other risk is that when the reset date comes around (April 2010), Multiplex may choose to hold on to the SITES and pay the step up interest of an additional 2% over BBSW (which would take rate to 3.9% over BBSW). This could in fact become a perpetual note.
So in short, there are two risks but I am advised by analysts in US banks (no geniuses) that Brookfield is in good financial shape and in fact has a $20 billion "war chest" with confirmed credit lines waiting for acquisition opportunities. (see thread as well as yahoo message board for BAM). Note Multiplex has been paying the interest coupon to date.
I calculate the current rate of return is equivalent to 68% per annum to April 2010. So, assuming Brookfield (parent) do not want to take any reputational damage on a small debt issue ($400 million), I think 68% per annum reflects a good risk/return scenario.
The negative side is that it all looks too good to be true. So, if you assume some problems like they delay redemption until Oct 2011, the rate of return drops to 39% per annum. Still very attractive. If you then take out ALL coupon payments between now and then, you still get 22% per annum return (all capital gain between 58 today and 100 in 2011); If you assume worse than this, no point in buying.
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