Babcock & Brown Power may be able to charge home under settlement deal
* Bryan Frith * From: The Australian * December 08, 2009 12:00AM
BABCOCK & Brown Power's debt reduction settlement with the B&B group is a step in the right direction, but there's a still long way to go.
BBP remains poised on a knife edge and it's still touch and go whether it will survive or follow the head company Babcock & Brown Ltd into administration, and possibly receivership.
After months of negotiations BBP has entered into agreements to settle the $444 million outstanding debt to Babcock & Brown International Group (BBIG), at a discount to face value.
BBIG is the operating and asset-owning entity of the B&B group and to date has managed to stay out of administration.
BBP has also entered into an agreement with BBIG to internalise its management, by terminating the existing management and advisory agreements, at no effective cost to BBP.
In return for extinguishing the debt and fees owing to BBIG, BBP will make a cash payment of $37.7m, hand over the proceeds of the sale of BBP's interest in the Oakey power station and issue 80.73 million securities to BBIG (10 per cent of the expanded capital).
BBP's stake in the Oakey power station had a carrying value of $46.55m on June 30.
BBP securities have been suspended for the past month and last sold at 7.6c, but for the purposes of the debt restructuring the units to be issued to BBIG will be at a price of 18c, which is equivalent to $14.5m. Thus, the consideration to BBIG is almost $100m, which means the arrangements amount to a reduction of about 80 per cent of the debt and fees owing to BBIG.
That amounts to an increase in value of about $350m, or 50c per security.
The parties have signed binding agreements, but the debt reduction is not yet a done deal.
It's conditional on a number of issues, including a binding agreement with the North West Shelf joint venture on terms satisfactory to BBP and BBIG; an independent expert concluding that the arrangements are reasonable and in the best interests of BBP securityholders; the successful implementation of a debt restructure with BBP's senior bankers, which are owed $2.6 billion to $2.7bn; and securityholder approval, or an ASX waiver from the need for such approval. Securityholder approval is required under ASX listing rule 10, relating to transactions with persons in a position of influence.
But BBP is hoping the ASX may agree to a waiver as the net effect of the proposal is to relieve the company of obligations.
Agreement with the senior lenders and the NWS joint venture remains essential if BBP is to survive.
BBP had been hoping to secure a restructure that could be put to the securityholders for approval at the annual meeting later this month.
That did not prove possible, largely because of an interim award decision on the gas price under a long-term contract with the NWS joint venture, which was handed down by the arbitrator several weeks ago.
Details of the new pricing arrangements have not been released, but it is believed to have been adverse to BBP, and, in addition to a much higher price, it could also involve a substantial amount for back payments. It is apparent that, unless the senior bankers and the NWS joint venture partners are prepared to make concessions, BBP will struggle to survive. Any restructure would probably involve an element of debt to equity conversion, but that's also a fine balancing act, because if the banks want too much of the equity it would be difficult to find any parties willing to inject needed new equity into the group.
Meanwhile, BBP will acquire the responsible entity, Babcock & Brown Power Trust from BBIG for $5m -- the amount required for a responsible entity to hold an AFS licence, which is already on deposit. Effectively, there is no cost to BBP. In practice, the management of BBP by BBIG ceased 12 months ago.
BBP expects that the discussions with its bankers, the NWS joint venture and its downstream customers will be concluded in the next few days, enabling an announcement that will enable trading to resume in BBP securities.
BBP Price at posting:
7.6¢ Sentiment: None Disclosure: Not Held
