aazpb, page-36

Hi Watford,

Yes, great news for AAZPB. The refinance is positive of course, with the Rudbank seemingly underwriting a roll-over of the $1.3B syndicated fascility and securing ALZ future. The next and last hurdle is the $300M CBMS due 2011 and that will also be replaced by "secured" finance in time. I emphasise the secured bit because that is what has given ALZ an edge in getting more funds. It seems from my readings that banks are happy to take on more exposure on super-secureed, 1st mortgae stuff at low LVR's than put any more money into the less secured syndicated debt stuff. ie the syndicated $1.3B debt already in place will be supported by Rudbank if required, the CMBS which are secured by 1st mortgages will roll over from CMBS into secured bank finance and as long as some sales reduce gearing and increase liquidity over the next couple of years it's just a question then of riding out the cycle.

In that respect I found the $70M of investment property sales at 8% discount to book as more important news that the refi, which I had expected. At 85 discount to book ALZ will still sit comfortably under the gearing covenents and it is ONLY through property sales and recycling assets through the balance sheet that ALZ can generate the liquidity for guarenteed solvency and importantly to pay out the AAZPBs. AAZPBs will cannot be paid from operating cash surplus alone.

I doubt that AAZPB wil be repaid in 2011. In fact I wouldn't be suprised if the margins above BBSW for the bank refi deal just announced was not on par with the cost of servicing the AAZPBs, such is the margin gouge now available to the banks. Given the AAZPB are not debt, do not count towards gearing and do not count towards gearing covenents it will be a while before liquidity and lending margins come down enough for management to risk repaying them in cash. The wild card might be to replace the AAZPB with non-perpetual hybrid notes at a cheaper rate when things settle down to save a few dollars interest costs and provide a out for ong suffering holders that want their capital back.

I always bought for the yield with long term capital gain upside so not to worried. At these prices and assuming another 0.5% interest rate cut during the year AAZPB are providing 15% yield. I would think that as concern over ALZ solvency and cash flow risk diminishes that AAZPB will head from $50 towards $70, giving a still reasonable 10% yield and almost 50% capital gain potential verses 2.5% yield for holding cash in the bank. Especially if earings on stock equities dissapoint and the many retirees start looking for decent yield and some certainty.

Anyway, onwards and upwards. Just a pity I bought in August 08 before the sudden melt down.

goodluck