BBI is not for the feint-hearted.If they can work through their...

BBI is not for the feint-hearted.

If they can work through their current debt situation, the rewards can be immense from these levels.

We should never forget the nature of their unique assets. Most of which are monopoly like and hence regulated.

However, there are a few key milestones they have to work through. The cutting of distributions, and asset sales will help, but the situation appears to remain tight. All this info is in the investor pack..I have summarised below:

Firstly, they have the 24% of Westnet Rail that they are obliged to buy by December this yr. I believe this is $85 million in equity (not sure but should be close) , plus they have to pay $60mill in mezzanine debt by Dec this year associated with Westnet Rail.

In addition, they have some PD Port debt (75m pounds)that needs to be rolled very soon, apparently Feb 09. Indications are it could be rolled, but in the current conditions, it is still possible that it cannot be re-fied and as such they may need to stump up.

In addition, the well known, $100m of their corporate debt facility that needs to be repaid in Feb 09.

So, in summary they have to pay :

85m + 80m + 100m plus possibly 75m pounds(say AUD$175m)

So 265m definitely plus another 175m possibly. So, 440m total. Of which 165m is due be next month and another 275m by Feb.

So, how can thay pay this.

The cutting of distributions should provide $300m on an annualised basis (apparently this equates to cashflow). How much will be available by these times, say $150m by end Dec? Maybe just enough to sort out Westnet Rail issues.

In addition, they have a commitment from QIC for the 50% stake in PowerCo, that should free up $400m in funds. However, PowerCo could take a while to settle due to NZ Competiton Authority approvals taking time..so very possible it could be after Feb next yr. Ideally, this will settle very soon, and it should make life easier, but most likely will take time.

So, for extra breathing space, BBI would ideally make another asset sale at around book value that frees up material equity with a quick settlement (i.e. before Feb 09).

So what is currently being shopped around?

Westnet Rail...if sold, this would help solve the issue they are facing here. I heard a rumour that QR are sniffing around here (just a rumour, nothing substantive), this would be ironic as apparently QR used to own a stake in Westnet Rail (supposedly).

Euroports...don't know much about these assets, but apparently one of the lesser quality assets owned by BBI.

DBCT - a fantastic asset.

If they can execute quickly on any of these for a reasonable price, then their ability to meet financial obligations will be almost certain.

The dislocation of debt markets is unbelievable at the moment. We are hearing horror stories of debt not being able to be rolled everywhere, and companies forced to raise equity instead. Even, some defensive earnings certain stocks have had issues.

However, most of BBI assets are unique and monopolistic (not like normal commercial property), and with earnings certainty (not all, but most). As such, it would be reasonable to assume that most of the asset level should be able to rolled. However, in the short term, you never know.

With regard to asset sales, there are buyers out there for such unique assets. You only need to look at the big pension funds who have transacted recently at reasonable prices, CalPers, Ontario Teachers, and QIC. These guys understand these assets and are comfortable holding these asset directly.

However, there is no certainty, but at 5c, I would never have thought it would come to this.

Some of the concern is due to what happens to BBI if BNB goes under. It is my understanding, BBI is relatively unaffected and BBI will still be listed (not like the AFG satellites). However, if the administrators were to sell BBIS, the RE for BBI, then this would trigger a change in control in BBIS and as such would trigger the BEPPA conversion/payout. Any sale of BBIS will most likely take a while as the administrators sort out issues generally. This should buy BBI time to generate internal cashflow and possibly from asset sales to pay out the BEPPAs using cash instead of a highly dilutive scrip conversion at very low prices.

Another thing to consider, is that once they are free of immediate obligations, any additional cash flow can be used to buy the BEPPAs on market at a discount to face value. They are an expensive source of finance for BBI. Sure they won't get them at their current price, as the market will adjust once they become aware BBI is buying but it should be able to make inroads at meaningful discounts.

However, these are my thoughts and opinions.