The AgeBBI plan at risk as security holders weigh up...

The Age

BBI plan at risk as security holders weigh up pay-outDANNY JOHN AND JAMIE FREED
October 10, 2009
THE $1.8 billion move to secure the future of Babcock & Brown Infrastructure is facing a threat from its hybrid security holders, who believe they might receive a bigger pay-out if the group goes into liquidation than they are entitled to under the recapitalisation plan.

With BBI's board saying that the group could be placed into administration if the refinancing proposal is voted down, the Australian noteholders are considering whether a rejection could produce a 27¢-a-security better return than currently proposed.

An initial investigation of the plan by investors has indicated that although BBI will pay the noteholders a total of 43¢ a security, the liquidation of the old Alinta energy assets - over which the noteholders would have access - could produce 70¢ a security.

The assets - which include interests in the Victorian Power energy distributor Multinet, West Australian Gas Networks, the Dampier-to-Bunbury gas pipeline and the Tasmanian gas pipeline - were said by investors to be worth $2.6 billion.

BBI has $2.1 billion of debt tied to the assets, which would need to be extinguished by paying back the banks in full.

According to one unnamed institutional investor, once the assets were sold, this would leave $544 million of value in BBI EPS Limited, the group company through which the noteholders' interests are contained.

That is equivalent to a 70¢-a-security pay-out, compared to the 37¢-a-security capital return, plus an additional 6¢ interest payment - making a total of $333 million that BBI has suggested.

However, holders of the securities still have to work out whether BBI as a group would have any rights over such a sum through cross-guarantees or if a third party has some security once the banks are paid out but before the noteholders get their entitlements.

There is also some doubt as to whether the value of the assets would hold up in the current market.

BBI paid $1.59 billion for the Australian Energy Distribution and Transmission assets as part of the complex takeover of Alinta in 2007.

In the prospectus for its recapitalisation, it took a $680 million impairment on those assets, on top of $232 million of write-downs in August.

It added that the assets were worth less than the value of the debt against them.

BBI's new cornerstone investor, Brookfield Asset Management, has been granted an option to acquire the Alinta assets for $1, and it will receive $5 million a year in management fees in return for assuming management control of the assets under the recapitalisation deal.

If approved, that will give Brookfield - which could end up with as much as 40 per cent of BBI - control over a substantial amount of its assets.

For a total investment of just over $1.2 billion, Brookfield will get 49.9 per cent of the giant Dalrymple Bay coal terminal and 100 per cent control of its British ports business PD Ports - and it will get this effectively for nothing.

Analysts said that the alternative to knocking back the deal by the noteholders and shareholders would to be risk losing what they have been guaranteed by BBI.

''This is likely to be as good as can be expected, given BBI's admission that it would likely default under its [$300 million] debt maturities in early 2010,'' said Deutsche Bank's Cameron McDonald, in a note to clients yesterday.

In the meantime, trading on BBI shares is suspended at 5.3¢.

But BBI has indicated that its shares would resume trading on Monday.