BBI 0.00% $3.98 babcock & brown infrastructure group

It works exactly as you described it, although your numbers...

  1. 4,510 Posts.
    It works exactly as you described it, although your numbers scenario is very harsh.

    There was a similar situation with Resolute notes around 2001 when their notes got into a death spiral with the shares. However, their notes had a 'circuit breaker' clause in it detailed that the maximum amount of conversion was 10 shares for 1 note and to my knowledge BBI prefs do not have this (correct me someone if I am wrong). In the end, 6 months prior to the conversion date, with the $2 notes trading around 55 cents, the noteholders and the ordinary holders/board got together and did a deal which delivered about $1 (ie 50% of face value) to the noteholders and stopped the shareholders getting a maximum dilution and in the end the company did a capital reconstruction after that had happened and traded its way out of trouble and everyone made money (some of us made lots of money).

    If BBI is faced with this prospect heading towards 2012, then they will need to consider such a deal at the start of 2011, otherwise both classes of holders (ie ords and prefs) will end up slitting each others throats.

    Still, 2011 is a long way off, but the more we look at it the more it seems necessary to sell 100% of DBCT. It may not be very palatable, but it would keep the wolves from the door until 2011 at least and provide the company with room to manoeuvre.
 
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