http://imagesignal.comsec.com.au/asxdata/20090922/pdf/00990224.pdf
RECAPITALISATION UPDATE
On 17 September 2009, Babcock & Brown Infrastructure (ASX:BBI) received a
refinancing proposal from The Royal Bank of Scotland, acting on behalf of an
investor group comprising primarily international hedge funds (the “RBS
Proposal”).
The Boards of BBI are committed to ensuring that they comply with their
obligations to all stakeholders. Consistent with this objective and the terms of
BBI’s agreement with a potential cornerstone investor (as disclosed in the ASX
release dated 4 September 2009), the Directors of BBI are required to assess
whether the RBS Proposal is superior to the transaction being contemplated with
the potential cornerstone investor.
On 18 September 2009, BBI, through its advisor, Gresham Advisory Partners
Limited, submitted a number of detailed questions seeking clarification and
additional information from The Royal Bank of Scotland. The questions asked
and the information sought, are designed to assist the Boards in an assessment
as to whether the RBS Proposal is feasible, in the interests of securityholders
and superior to the existing recapitalisation proposal. A response was received
on 20 September 2009. Subsequent clarifications were required and have been
sought although a number of responses remain outstanding.
In summary, if the RBS Proposal is able to be implemented, proceeds would be
used for the repayment of the existing corporate debt facilities of BBI, through a
combination of new Convertible and Redeemable Bonds ($600m), a new
corporate debt facility ($350m) and new equity ($400m), half of which would
come from existing stapled securityholders. The net new equity raised after
transaction costs and other payments1 will not materially change the current
gearing levels of BBI, or address near term debt maturities at the operating
businesses. This outcome is central to the BBI Directors assessment of whether
$400m of new equity could be raised in these circumstances, whether BBI
securityholders would be better off as claimed in media articles describing the
RBS Proposal2 and whether a proposal that defers BBI’s financial pressures but
1 Total costs and other payments are likely to exceed $200m and include closure costs of interest
rate swaps on the corporate facility of approximately $100m.
2 In media articles purportedly describing the RBS Proposal, it has been claimed that
securityholders would be $500m better off. This claim relies on there being (amongst other things)
a substantial re-rating in the trading prices of BBI securities.
does not fundamentally address them, is in the best interests of BBI
securityholders.
The Board also has a number of concerns as to whether legally and
commercially the proposal submitted by RBS can be executed. Certainty and
timing of execution is also an important consideration for the BBI Board given the
timing of upcoming debt maturities.
BBI and its advisors will continue to assess the RBS Proposal, having regard to
subsequent clarifications that have been sought, to determine whether it is a
superior proposal.
BBI Directors note that the value outcomes for BBI securityholders, both under
the recapitalisation proposal announced on 4 September 2009, and pursuant to
the RBS Proposal are highly uncertain and may attribute a value to those
securities that is less than face value or recent trading prices.
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