Just adding to my previous post...I wouldn't be too quick to...

Just adding to my previous post...

I wouldn't be too quick to write of B&B just yet. In the current environment, I probably wouldn't want to hold the equity (ASX:BNB) because it has headed south at a rapid rate and the future for the SP is very unclear. There is very low sentiment and the general lack of capital are adding to the woes. I genuinely feel for holders who have ridden this all the way down and you have a right to feel angry at the company.

It's very easy to point to AFG, ABS, media reports or other sources and simply say B&B are going under... because everyone says they are.

You would be wise however to make a distinction between 'continued precipitous drop in share price' and 'out of business'.

Taking the emotion out of the situation, as I said last night the notes (ASX:BNBG) may present an opportunity for a high risk speculative play.

If you hold shares in B&B (ASX:BNB) then you have a claim against the very bottom line on the balance sheet (p52 of the Appendix 4D, "Total Equity"). If this is reducing, so is your investment. In the current environment, asset devaluations are eroding shareholder equity quickly but this won't last forever.

As you are probably aware, BNBG is essentially a debt instrument. If you hold BNBG the company owes you money... $100 to be precise. As a BNBG holder, you are represented by another line on the balance sheet (p52, "Interest Bearing Liabilities" plus note 13 on p71). If someone chooses to sell you their $100 debt on the ASX for $6 (or whatever amount) then that is their right to do so. The value of the debt however does not change. The interest payments B&B makes are based on this $100 face value irrespective of how much you paid to own it.

Yesterday, B&B announced the upcoming interest schedule and the rate for the next 6 months is set at 6.3817%. As the face value of the note is $100, this means a payment of $3.13 (i.e. 6 months worth) next May again, irrespective of how much you paid for the note. You could reasonably expect a similar payment next November but this will depend on how interest rates move meanwhile.

On a technical level, if B&B continues as a going concern, they are required to keep making payments on these notes until certain events occur - these are detailed in offer documents and available through the ASX or B&B web sites.
If they are unable to make interest payments, but remain afloat, the interest continues to accrue in your favour and if the company is able to pay in the future, it must pay the full accrued amount. There is also a 'dividend stopper' clause which means that the company is unable to pay dividends if it has deferred an interest payment.

As you can see, if B&B stays alive you will receive ~$6 in interest over the coming year and continue to receive interest until 2015 when they mature; at which point the company will give you your $100 back.

Now, the concern for BNBG investors revolves around whether B&B remains alive. A look at the interim results shows there is no doubt they are in a word of pain, asset levels are dropping, there is a lot of bad sentiment and the global environment is challenging. The future is unclear but there is still $6.07 NTA and 46.1c EPS and even with the inevitable hit this half, some value appears to still remain. Only time will tell.

Two other points to note:

Firstly, even if B&B goes into administration, the $100 debt owed to you by the company does not go away. The notes rank lower than debts owed to the banks and some others (hence the term 'subordinated') but above shareholders. If the company is broken up and sold, the proceeds are apportioned based on ranking. Note holders could receive anywhere from $0 to the $100 face value depending on the funds available. Now, this is not a pleasant situation - the notes will no longer be traded on the ASX and administration can take a few years to work through before you get a result.

Secondly, B&B have highlighted the fact that they are in discussions with external parties over equity injection or takeover. This may or may not happen but if it does, your $100 debt remains and is in a much stronger position.

Finally, almost as an aside from BNBG you have to wonder what is going on with Jim Babcock. He founded the company in 1977 (with George Brown) and has been a driving force ever since. He stepped down as chairman in August and as a director on 1/11. After 31 years, you'd have to think the chap has a huge emotional attachment to the company that still bears his name. I have no insight into what is going on but it wouldn't surprise anyone if he emerged to reclaim the company at some point.