ubs research on bbp, page-40

ICR = (Cash Available for Debt Service)/(Interest Payment) and is a measure of how much cash is available to pay interest after paying for the operations of the asset.

Cash Available for Debt Service = EBITDA - CAPEX

It is therefore correct to subtract the current year's capex from EBITDA as kingalpha has done.

What Melua's previous analysis does not take into account is that any asset sales will trigger change in cotrol provisions in the debt docs requiring the debt to be repaid in full i.e. new debt will have to be arranged and the current market is nothing like what it was. BBB debt for infrastructure assets in the current markets will now paying margins of ~250bp vs ~100bp a year ago. For the sake of simplicity lets say it is 150bp increase over the previous all in rate of 600bp i.e. a 25% increase in the cost of debt. Also, the new debt will be sized to an ICR of say 1.6x.

So if the ICR is currently 1.3x, increasing the ICR to 1.6x will reduce the debt outstanding by a factor of 13/16 of the original balance and the increasing the cost of debt by 25% will reduce the debt outstanding by a factor of 4/5. Therefore you will only be able to get about 13/20 of the current debt in these assets.

Using today's APA announcement as a proxy for the appropriate level of gearing, we will say that any new acquisitions will be ~70% geared. For 13/20 of debt, you will have 5.6/20 of equity for a total of 18.6/20 of the current debt i.e. insufficient to repay current debt.

So that is why I believe that the equity is worth nothing - because the debt will need too be reset at current rates. That is the same reason as why you cant apply EBITDA multiples from assets that put their debt in place when markets were good.

When looking at their asset sales to date, remember that they would be selling the good assets first in order to reduce corporate debt, so you can't just extrapolate.