my bbi valuation / dbct sale flows, page-164

Dargie, interesting thoughts...

I'm not sure if there is anything in the terms about using cash to pay interest before repaying principle. I've never seen such a clause.

The reason why I don't think it would exist is because a buyback would have to be done at a level greater than current market levels, enhancing BEPPA holder value. The fact that they are paying a distribution or not is irrelevant because we know they have the cash to do it, and it shouldn't affect valuation either way because they are cumulative.

Example: Say BBI has $50 and 100 outstanding BEPPA. If they have this cash and we are happy it's not going to be used to buy anything, it has to go to BEPPA in some way (because they can't pay dividends without paying accrued interest). Since that $50 is there, even if coupons aren't being paid, they are as good as paid because the cash is accumulating to back that liability.

Since this is the case, the market value of BEPPA should reflect coupons being paid (not completely, depends on the reinvestment rate). Therefore any buyback of debt will only serve to lift the market value of BEPPA ABOVE the fair value as if coupons were being paid, because they have the ability to pay the coupons.

Also remember, you don't have to tender into a buyback. What would you rather them do...pay interest only and then pay equity dividends??? Surely that's a much worse outcome!!!

Another way to think of it...would anyone tender to a buyback of debt at less than the PV of par if we knew the company had the cash sitting there to redeem the debt at maturity? Of course not!