what the financiers are thinking

OZL's banks want their money back in the shortest period of time. The key question facing OZL shareholders and traders this week is whether the banks are likely to get ALL their money back faster by (i) allowing OZL to go into administration next week, or (ii) extending/refinancing to facilitate the Minmetals takeover.

From the perspective of the banks, the downside in allowing OZ to go into administration is that the administration process is often complex and lengthy and the 10 banks in OZ's syndicate could easily end up waiting 12 months or so before they get their cash. The upside to administration is that the banks would be fairly certain that they would eventually get ALL their cash back. Even at fire sale prices, the value of OZ assets should easily exceed the $1.3b they owe to the banking syndicate. However, the banks will also be aware that administration always creates some uncertainty re asset values, so administration does incur a small risk to the banks that they will not get all their cash back.

Again, from the perspective of the banks, the upside to refinancing/extending is that the banks stand to get ALL their cash in less than 4 months (as soon as the transaction is implemented). The downside to refinancing is that the govt regulators could eventually reject the bid, and OZ would go into administration a couple of months later then it otherwise would have.

Central to the banks thinking at the moment is the probability of govt regulators approving the takeover. I personally rate the probability of the deal meeting regulatory approval at about 70%. But even if we assume it only has a 50% chance of crossing the line, it seems to me that, on the basis of the above, it is still to the distinct advantage of the banks to refinance until a decision is made by the govt regulators (probably mid April). As mentioned, the upside risk for the banks in refinancing is that they get ALL their cash in around 4 months. The only real downside risk in refinancing is that they get their cash around 2 months later than they otherwise would have if they send the company into administration next week.