bbi warns of wipeout threat

BBI warns of wipeout threat, extra debt
JAMIE FREED
September 5, 2009

"THE troubled Babcock and Brown Infrastructure has revealed the potential for shareholders to be effectively wiped out as part of a mooted recapitalisation deal meant to stave off the prospect of collapsing into administration as early as next month.

BBI's shares plunged 22 per cent to 6.1c after it exited a trading halt yesterday with the warning that after a potential placement to the private equity partner, the value of existing shares and hybrid securities could be lower than recent trading prices due to the amount of dilution involved, particularly with converting the hybrids. Its EPS hybrids closed

29 per cent lower at 11.4c.

The company also surprised the market by revealing it had $300 million of corporate debt due to mature in February. In its results presentation last week, BBI listed just $169 million of corporate debt due that month.

A source close to the BBI told Weekend Business that under an agreement with lenders detailed in a 339-page notice of meeting to SPARCS hybrid holders last year, the actual payment obligation is about $300 million.

Last week BBI's chief financial officer, Jonathon Sellar, said the company assumed the $169 million corporate facility and a separate $205 million facility involving PD Ports in Britain, set to mature next month, would be challenging to refinance.

It would have to be repaid ''from a combination of either operating cash flows and/or net proceeds from either asset sales or raising of additional capital''.

The PD facility has been described as a ''non-recourse asset level debt'', meaning it is secured over PD and not over BBI at the corporate level.

But buried in the SPARCS notice of meeting, BBI also disclosed that if it halted repayment on an asset-level debt, it would lose the associated cash flows and that could ''potentially lead to an event of default'' on its corporate facilities.

It is negotiating for another extension of the PD facility, but if it is not granted, BBI could be pushed into administration as early as next month because it has no free cash at a corporate level to put towards debt repayments.

BBI hopes the announcement of negotiations with the private equity suitor will help buy time.

For months, BBI has been attempting to sell all or part of PD and the Dalrymple Bay coal port in Queensland to repay its debts.

BBI yesterday said the asset programs were ''unlikely to realise sufficient proceeds'' to repay the debt due in this financial year.

''That's actually quite surprising,'' said one analyst, based on his previous valuations of the assets. He said buyers might be waiting for the company to collapse and for a fire-sale of the assets by the banks.

It remains unclear whether even the banks would be able to recover the full $9.1 billion owed if they liquidated the company.

BBI had asked the stock exchange to allow its shares to remain suspended while it continued talks with the prospective cornerstone investor, who will receive a three-month right of first refusal over the sale of certain assets, but it was not granted."