If I may, I would like to add to the BBI vs BEPPA discussion.
There are really three scenarios to consider:
1) Significant impairment of the BBI assets that leads to an inability to repay debt or triggers loan default clauses.
2) Slow recovery based on paydown of debt with existing revenue streams.
3) Fast recovery based on resetting current market sentiment due to asset sales, restructure, or general improvement in global financial situation.
If 1) comes to pass - BEPPAs are better.
- On a receivership event - BEPPAs turn to unsecured debt - ranking above equity holders but below other covenanted debts. Some high recovery rate is likely ~ say, 50%.
If 2) comes to pass - it is a toss up between BEPPAs and BBI
- In the event of a slow recovery - the quarterly compounded return (margin above BBSWR) drives BEPPA income during recovery. BEPPA and BBI, in this scenario, would also slowly recover - the difference being that BBI can go above $1 per share - impossible for BEPPA unless accrued interest payments remain undistributed.
If 3) comes to pass - BBI is better
- BBI can recover to above $1 - impossible for BEPPA. Fast recovery means that the interest offset BEPPA has over BBI is trivial compared with the capital gain rate.
I do not think the three scenarios are equal probability. I think, as pure speculation, that scenario 3) is >80%; 2) is ~15% and 1) is <5%.
So ... over to you ... how do you value "Risk", how do you value "Reward" ... the answers are different for every investor. (Hence, the BBI vs BEPPA decision is different, for every investor).
BBI Price at posting:
9.0¢ Sentiment: Buy Disclosure: Held
