para by para dissection........"As previously disclosed, Babcock...

para by para dissection........

"As previously disclosed, Babcock & Brown Infrastructure (ASX: BBI) has $9.1 billion in total proportionate debt and $1.2 billion in corporate level debt facilities as at 30 June 2009. Of this amount, BBI has approximately $2.7 billion in proportionate debt maturing in FY2010 and FY2011, including approximately $300 million of corporate debt required to be paid down in February 2010.

Accordingly, the Board of Directors and management of BBI have been actively pursuing a range of options to provide BBI with the capacity to address these pending maturities. In the absence of repaying or extending these facilities, such facilities will become due and payable on maturity."

Feb 2010 is d day. Banks have told us they are not rolling over. No mention of PD Ports debt.

"Until recently, BBI has focused on sales of significant assets as its primary strategy for achieving debt repayment. However, achieving asset sales in the current environment on terms which would realise sufficient funds for the necessary reduction in BBI’s debt is proving difficult, with timing and value outcomes uncertain. Based on present circumstances, BBI’s current asset sales programs (net of expected disposal costs and taxes) are unlikely to realise sufficient proceeds to meet BBI’s FY2010 debt maturities."

No-one is prepared to buy DBCT for a reasonable price. Bids received to date do not get us out of the crap. They only prolong the sale process for other assets and if we keep at it we will eventually wipe out SHF in try to meet the debt repayments. This approach effectively destroys the company.

"As such, the Board has also been focusing on the possibility of engaging in a comprehensive equity recapitalisation transaction combined with sales of certain assets. In this regard, BBI is in active dialogue with a potential cornerstone investor. The Board believes that the participation of a well-capitalised investor would significantly increase the likelihood of a transaction being successfully completed prior to the group’s debt facilities maturing."

Plan C (or D or E) is to get g0osed by a new investor coming in. We have exhausted all other options (apart from administration), so therefore we have to this.

"The terms of a transaction with the potential cornerstone investor have been discussed (although the structure and details of any such transaction are not yet finalised). A comprehensive recapitalisation on the terms discussed requires the consent of existing lenders and BBI has approached the lenders to obtain their consent to the recapitalisation. To assist its recapitalisation objectives, BBI has appointed financial advisors to the proposed recapitalisation, and Gresham Advisory Partners have been appointed as financial advisors to the BBI Boards."

I really struggle to see how the banks would not want this, depending of course on what it all means. It will come down to how much of the $1.2B is the cornerstone investor prepared to give the banks now. Naturally the banks will joust around a little and use the time zones and large number of banks to make BBI sweat it out a little, but really they would be bonkers to turn down hard cash now. I reckon $7-800M or so may see the sweep removed and the banks agree to a different repayment structure. Anything agreed with the banking group includes the BBN020 bondholders. If a large chunk of money does come, could be another big onmarket buyback. Also a partial sale of 49% of DBCT would see more debt paid off through the sweep process. Ultimately the medium term aim must be to eliminate corporate debt altogether. It is obvious now in these sorts of companies that debt should really only be at an asset level.

"It is likely that there will be a requirement for full conversion of EPS and SPARCS in advance of, and in order to facilitate, any equity recapitalisation and that theownership interests of BBI ordinary securityholders, and EPS holders and SPARCs holders post-conversion will be significantly diluted by the recapitalisation. The transaction mechanics, including any conversion of hybrid securities and the basis on which it would occur, have not been determined. The value outcomes of the transaction for BBI ordinary security holders, EPS holders and SPARCS holders are not certain and may attribute a value to those securities that is less than face value or recent trading prices. Furthermore, associated sales of assets may be at amounts lower than their current book values."

As the more astute posters pointed out, stand by for major pillaging of ords and prefs holders. Wave bye bye to any accrued interest. This was the 'restructure or die' approach I suggested a few days ago that was likely to emerge, and it has. I can see pref holders having to take a fixed swap of ords, maybe 4:1 or 5:1. I personally think the rights issue will come at around 5 cents, and with the enlarged share base would need to be a 3:1 or 4:1 at 5 cents to raise the $1B we are talking about. It will be non-renouncable so that everyone who wants out simply cops a straight dilution.

Whether they simply allow the SPARCS holder to convert on Nov 17 at face remains to be seen, but it looks like they definitely want them to all convert and not rollover at all, effectively eliminating the SPARCS altogether. I suspect they may get a higher ratio that the pref holders to keep them on side. Maybe 7-10:1. Who knows really.

"Given the range of potential outcomes of the transaction, as has been speculated in the press, BBI sought suspension of its securities while the transaction was further developed and negotiated. This request was not granted. However, BBI stresses that the current position is highly uncertain, and that there is no assurance that agreement will be reached in relation to any transaction."

ASX have told them to get on with it.

"In recognition of the time and cost commitment required of the potential cornerstone investor, BBI has entered into an interim agreement with the potential cornerstone investor to continue to negotiate in good faith the development of the proposed transaction. This agreement includes a non-solicitation obligation on BBI, a capped cost reimbursement provision in favour of the potential cornerstone investor and a three month right of first refusal over the sale of certain assets, if BBI chooses to seek to sell those assets."

Cornerstone investor has exclusivity. This tells me that they definitely want the recap to proceed. As far as I am concerned only a blocking of the deal from an outside party (a failed prefs or SPARCS vote or bank refusal) can stop this from happening now.

Interesting day. Very interesting.