I am not too concerned about the amount of debt BBP has, nor who...

I am not too concerned about the amount of debt BBP has, nor who it owes the money to, BNB or otherwise.

Now there's a controversial statement in the current environment.

The company has acknowledged that it will be unable to continue under the 'old' model. Had this realisation not taken place AND steps forward been made, you wouldn't put a cent into the beast.

BBP cannot continue in the current form and I doubt there is much disagreement on this point.

In effect, BBP is up for sale, either in parts or as a whole. The company has told us this, has made moves to start the process and has said that there has been a high level of interest already. This is as you would expect - as I said yesterday, power stations require regulatory approval and are both costly and time consuming to build. Demand is likely to increase in the future, not decrease.

When a situation like this with BBP arises, an investment decision is based on:

a) what you think a knowledgeable buyer would pay for the unencumbered business (or sum of parts) in an arms-length transaction

b) whether the sale price will be enough to extinguish the liabilities + outstanding expenses associated with the transaction

c) whether there will be comfortably more than 5.7c (the current SP, which equates to $42m market cap) left over for the shareholders if it occurs.

When you take this approach, the current debt levels and who the money is owed to are essentially irrelevant so long as your a/b/c analysis indicates a situation in your favour.

If your a/b/c analysis is NOT in your favour (for instance you think a buyer could not be found OR they will be unwilling to purchase the assets at a reasonable price) you should NOT proceed with an investment. This scenario presents a dark future for the company and your hard-earned.

Put simply, you have to believe someone is going to buy the company in such a way as shareholders get something back.


Here's an example:

If I buy a house off of you, I don't care who you owe money to so long as I can take unencumbered ownership of the asset once the transaction is complete. If you have lease or management agreements in place for the asset, I want to either close these out (which may involve an expense) or I may choose to continue with the agreement post-sale. Either way, they need to be factored into the purchase price.

You don't care where I get the money from (I may choose to finance from my own savings/equity, through lending or I may take over your existing mortgage), so long as you can maximise the price, it covers your liabilities and expenses and leaves some equity over for the shareholder - ie. you.

If I have a good credit rating or a lot of equity, I may be able to source funds significantly cheaper than you can, which would reduce my interest expense and allow me to keep more of the EBITDA than you can, thus making the asset even more attractive.


This is why I say the management contract (MC) with BNB is such a barrier, more so than who the debt is owed to. The MC adds a level of complexity to the sale as BNB will not want to part with it without realising value. On the flip side, the fact that the BNB share holding in BBP has lost value, actually works in our favour given their current woes.

I hope this methodology makes sense. It's an approach that a handful of well known value investors use. It's risky of course and the fact that there is a lot of debt magnifies this risk. However it does allow you to step back from the sentiment gyrations and make an objective assessment of the situation.

On a final note, if you still believe the 'debt burden' is too great, or you don't have the risk appetite, I'd stay away.