wsj article, page-24

It's probably going to be a complex make-up. We have to consider CNP, SuperLLC and to a lesser extent CER.

Firstly, CNP is the 'headstock' and at the end of last year, most of the controlled entities were consolidated into the CNP accounts.

(The BS journalist today went to press without understanding the structure properly and make himself look like a bit of an idiot by saying all the equity in Centro will be destroyed if the properties are revalued. The maths were compelling but the argument a bit flawed.)

If you own CNP, you own a little piece of the headstock and there is a big question mark over whether there is actually any equity left in the beast or not. You'll note that the $1.2bn-odd of equity in the headstock is made up of about 50% intangibles, although to be fair they were tested for impairment in June.

We will see further property revals at half-year and they may indeed wipe out the existing equity in the headstock.

It seems to be the general understanding that the value of the services business has not been fully recognised in the accounts of the headstock, but the actual value is very hard to estimate. GR had a stab earlier in the year and a few others have too. One thing is for sure, it'll be almost exactly $0bn if the company folds.

So, to work out how well off we will be if a D2E swap occurs, you have to accurately value the business today AND work out the value of future income AND the assets once the cycle picks up.

Note that the high leverage level kills you at the bottom of the cycle (where we are close to today) BUT rapidly accelerates your value once the cycle picks up, which it will. The doom sayers reckon this downturn will be 'different' but history will prove otherwise and is beginning to do so. It may be more severe, but the market will recover in time.

The lenders will argue there is no equity in the company today and water down the future prospects. The company will argue there is anywhere between some and a lot of equity today and that future prospects are very good. I hope they will meet in the middle.

I put some figures together previously which showed that an 80% shareholding interest for the lenders for $2bn was more-or-less NTA neutral for existing holders, which suggests the company would still be worth ~70c per share NTA (on the Jul accounts) after the swap and more so when the cycle picks up.

The swap will probably be complex but if they take 80% for $2bn (or a combination thereof, like $1bn for 40%), I'd feel OK about the deal and hopefully the market will too. If they get 50% for $2bn (or combination) I'd do a little jig and have another Maxibon.

Whatever the outcome, the media will be unlikely to put a positive spin on any D2E swap by simply saying "existing long-suffering shareholders have been diluted" and those who know no better will assume any dilution is bad.

The other point of course is the length of extension on the remaining debt. I'd say that if the lenders are happy to take equity, this should be at least a year, probably more.