it's dated 10 NovemberRecommendation: SellBNB buys and develops...

it's dated 10 November

Recommendation: Sell

BNB buys and develops infrastructure and real estate assets then sells them to investors, while also running an operating leasing business. The competitive advantage behind the pipeline of assets is management and staff. BNB benefited from the pre-2007 era of cheap equity and debt but now faces the hangover from the boom. It bought quality assets, though in some cases overpaid. The complexity of BNBs accounts, the dependence on debt in a credit crisis, recent reputation damage and questions about the sustainability of revenues from the specialist funds make this a high-risk investment which could yet go to zero. It is not for conservative or income-oriented investors.

Event10-Nov-2008
In a media interview BNB CEO Michael Larkin admits the company is frequently meeting its bankers to retain their support, and has had to draw down on credit lines to avoid breaching a loan covenant.

Business Impact: These two developments are material changes from the company’s previous advice to the market. Until recently BNB said it was under no pressure from its bankers and was not having to tap credit lines to maintain its asset coverage covenant. The CEO now admits ‘there is a lot of uncertainty’. The banks are obviously anxious about their exposure to BNB and are probably pushing for accelerated asset sales. The irony is the world’s banking industry has reduced lending to buyers of assets, making it difficult for overgeared firms like BNB to deleverage. BNB has not made enough progress. Management admits it had to draw down on a bank loan to find enough cash to keep current assets above current liabilities. BNB obviously has a shortage of cash, but it cannot tap undrawn credit lines indefinitely given they are limited and the banks will not be in a mood to extend more credit. With thin shareholders’ equity and major uncertainty about asset values, particularly the $4.6bn of real estate on the balance sheet on June 30, directors will be under pressure to ensure BNB does not become insolvent and does not trade while insolvent. It remains extremely difficult to forecast BNB’s earnings, particularly with the ongoing loss of advisory fees from the specialist funds, and therefore value the company.

Forecast Impact: --

Recommendation Impact: Were BNB to go into liquidation the banks would still have to sell the same assets into the same buyer’s market, but that might not prevent them ending their support for the company. Given the obvious liquidity shortages, heightened risk of insolvency and difficulty selling assets to degear, we are removing the Hold/High-Risk Buy tag and downgrading to Sell. Sell all BNB shares now.