This is an excellent string that fleshes out all the issues around notes and the debt for equity swap. May I reply to the posts from htran and rowscoe piece by piece, as follows:
"The BNBG notes have a flaw in that there is no floor in the share price for conversion so they are convertible into 400mm of shares which might give them some bargaining power. They are however subordinated which might take that power away."
Absolutely bang on, although I would call it a 'mechanism' rather than a flaw. The banks will not allow some of their debt to be turned into equity and at the same time give bondholders priority over the new bank equity. However, at the same time the banks know they cannot leave the bondholders hanging because if they bondholders were offered a poor deal, well they could vote it down and force BNB down a bad road that would screw the banks. So for the banks to agree to a deal, the bondholders are going to have to be offered some sort of deal that is good enough for them to accept, but not too generous either.
Bondholders have to be realistic that the chances of seeing $100 of value are virtually non existent and anyone hanging on for that, when the company has negative equity, well they are fooling themselves. There will be a middle ground. Maybe $50 is a starting point for now.
"My guess is the BNBG notes will be cut by 50% and be given a fixed conversion rate of say $1 per share which means that they will get 50 shares for every $100 notes which would be worth 44cents * 50 = $22 per BNBG note"
That sounds a little too generous, but maybe not too far away from the mark. However, I do not think in a blue fit that the BNB shares will be worth 44 cents if (say) the existing ordinary shareholders were diluted at 10:1 or something similar in the upcoming proposals.
"i think at the minimum, noteholders will want minimum $50 per note. anything less than that and the company can go into administration. The bank is likely to lose more in Administration (noteholders will be wipe out), than to give noteholders $50. Remember, noteholders are debt holders too. Just that they rank lower, a $100 debt means a $100 debt."
Absolutely bang on. The banks also have a lot at stake, lots more than the bondholders. They need to get the current bonds eliminated so that the bondholders rights are eliminated. Most bondholders would likely accept some sort of swap, if they are realistic now about what the bonds are worth. Bondholders I suspect will have to get into the back of the van and ride the coattails of the banks debt for equity swap, but probably on less favourable terms than the banks given the lower priority of the bonds.
Great string guys. Roll on tomorrow........
BNB
babcock & brown limited
