It is fascinating to watch markets when announcements entirely inconsistent with sentiment are delivered...it's even more interesting when you fortuitously closed a long position ahead of that same mayhem...I feel for those still on the register.
However, I'm not convinced it's all hopeless and terms such as 'death spiral' are an emotional trigger only and not overly helpful. Possibly even misleading.
Some rationale for a simple minded person...
1. The sentiment in the market and indeed here on HC is that hybrid and preferential security holders have only a single choice...ie conversion. So if I follow the logic, the wankers (er sorry...bankers) do a number on BBI and so the directors must necessarily turn to the preferred equity holders and do a number on them. In my view that's a fair leap of faith but entirely consistent with the text of the directors release i.e "...requirement for a full conversion of EPS and SPARCS..."
2. In looking at the EPS Terms and Conditions:
(a) the directors do have capacity to[cl 5.3(b)(2)] and may issue an exchange notice (for conversion or redemption);
(b) any exchange notice issue is subject to certain conditions [see cl 5.3(d)(1)]. [cl 5.9(a)] if the company must exchange but cannot because of a "Market Disruption Event", then the company must redeem the relevant EPS. A "Market Disruption Event" includes "...a disruption in Australian economic conditions that is reasonably likley to prejudice materially the success of issuance of Stapled Securities..." ... that sounds like the GFC to me!
(c) the redemption amount is also clearly defined which I think is somewhat higher than currently taded price...
3. Alternately the directors might like to explore the resale provisions. That would be fine also for those recently acquiring BEPPA as I think accrued dividends are greater than the prevailing price and per cl 5.8 the coy has no rights to resell until dividends are paid.
4.Lastly, I note that EPS rankings are preserved to the extent that whilst they company may issue further preference shares, they will rank equally or lesser than existing pref share...might be a path but not very attractive...still liabilities laying around.
5. I'm scrounging for a trading entry point and so interested in what lies beneath the surface. It is very disconcerting that the Directors have behaved they way they have...nothing more that cheap morons...but they have I think possibly been a little mischeivous in describing the sequel of events ahead...they have assumed that hybrids and prefs will diligently tow the line...it certainly has impacted the market for BBI
My take...keep you eye on this one...the saga is anything but finished and unless some one wants to take the debt out, relax the covenants or some other debt relief program, insolvency is the only alternate. Recapitalisation in my view is not likley...
Definitely DYOR as lots of people have already lost lots of money on this dog!!!
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