my bbi valuation / dbct sale flows, page-61

"But if the banks are wanting BBI to reduce corporate debt now, how quickly will they turn around and allow more debt just for the benefit of equity holders? This is the paradox. The biggest investor (the banks) is telling BBI now that they don't want any more of this stuff. If they don't want it, who does??? If nobody does, conversion is the only other option, and this is at their choice."

I agree the chance of banks leaving debt in here with BBI at a corporate level does not look too flash. And certainly the chances of a bank putting in new money to get the company out of its prefs situation, well there is more chance of Pauline Hanson joining the Labour Party than that happening.

However, there are several potential BEPPA outcomes, as follows:

1. Total conversion. If this happens, well it happens.
2. A buyback of some sort. This is possible, but not until all debt in the way is cleared away first, and then the company would have to physically find the money to perform such a buyback. I agree that having to deal with all the debt issues and then relying upon cashflow to find $700M for the prefs payout is very unrealistic.
3. A restructuring of the prefs in some manner that on the one hand reduces the dilution factor, but on the other hand gives the pref holders some upside.
4. Some sort of reset process as referred to above.

How would these outcomes occur?

1+2 speak for themselves. I think 2 is very unlikely for at least 18-24 months, unless there is a very significant asset sale on top of the 100% sale of DBCT. ANd 2 could not happen until all arrears were paid first. By that time this could be a very big number. I suggest this will lead them more down a restructuring path.

3. There are various ways to restructure the prefs. They may try and offer shareholders a new set of bonds (NB not prefs) with better security that the existing prefs, or perhaps a combo of bonds and cash or bonds/cash/ords eg a 50 cent bond and 20 cents cash and 2 shares (or whatever combination you like) although any cash offered will be well down the track as the cash is needed elsewhere first for the debts and commitments I mentioned in my previous post. Current holders will have to write off their accrued interest under this scenario (which is usually the case in a restructure of distressed securities like this). Current holders would really need to address the reality that they will never see their $1 again and will have to ask themselves what will it take for them to accept a restructuring deal.

4. You are all dreaming if you think that rolling these prefs over into new prefs is going to happen. These prefs have the potential to cripple the company and to massively dilute the ordinary holders. They need to eliminate them. Just 'resetting' them is fantasy. In fact I have never seen a preference share 'reset' before. To achieve a 'reset', you would need to give the holders their right to convert or transfer into something better, and a transfer into something 'better' is not always want holders want (as we just saw in the SPARCS case). And I can tell you now that any holders who have had to sweat it out until 2012 with the prefs trading at a massive discount to face value all the way along, well human nature says they will convert to shares given half the chance and get back what they can.


I predict that in about 12-18mths time, when the company is in better shape financially (I am assuming), that they will have a crack at restructuring these notes.

I wish people could be a little more realistic about BEPPA. All the piffle about "how I am going to hang on for my $1 plus accrued interest back" is very very naive investing. Surely you can see how remote the chances of that happening. Please WAKE UP.