loan notes as cash component for beppa restruc

Well unless something super duper happens in terms of asset sales (like 100% of DBCT and PD Ports, both for reasonable prices), you can pretty much rule out a cash component in a BEPPA restructure. The sweep effectively blocks this out.

One thing they may consider in a prefs restructure (that I have seen used before) is to schedule a series of payments using loan notes as piecemeal payout of cash on a deferred basis.

Just to give an example (without getting into the why and wherefores as to what amount and timing it actually would be), a scenario could go something like this:

An offer of (say) 40 cents deferred cash and 2 or so BBI shares, with the 40 cents cash payable as 4 x ten cent loan notes (possibly with no interest or maybe a little interest, like 5% or so).

Note A may be 10 cents on (say) 1 Dec 2010 = $70M
Note B 10 cents 1 Dec 2011
Note C 10 cents 1 Dec 2012
Note D 10 cents 1 Dec 2013

Anyway, you get the drift. These notes will be tradeable in the marketplace and naturally the longer the maturity the larger the discount you will get on trading them in the market. They would need to be subordinate to existing corporate debt, but would also need to rank ahead of ords and also would need some ability or formula etc to block dividend payout to protect their position. They would need some ability to call them up and pay them out early if they came into money from an asset sale etc.

Thinking laterally, an ord holder would much rather have a scheme like this and avoid massive dilution than getting a teeny weeny dividend on a vastly diluted ordinary share if the full BEPPA conversion took place.

This would mean only 1.4B new shares would be issued (700m prefs x 2 shares), and in this example 60% of the balance of the prefs (ie .6 x $700M = $420M) would be booked as a gain to equity as you are forgoing some of your cash backing in exchange for shares and this would help to offset a little bit of dilution. Interest accrued at present would need to be foregone.

Current NAV on full dilution looks pretty ugly at present and this is why the market price for the ords is where it currently is. Projected NAV using something like this would look miles better. Would definitely cause a massive rally in BBI ords if it was accepted and implemented. Would also make a capital raising far more palatable, especially at a more respectable BBI ords price.

This would be a truly massive reversal of the death spiral and a major removal of most of the threatened dilution of the ords. It would also turn a cash component of a BEPPA restructure into bite sized pieces that would be more manageable for the company to repay in instalments rather than one massive chunk. You would think that the company, in a better position in 12-18 months time (or possibly longer), with little corporate debt on board, should be able to generate the necessary operating cashflows from its assets to pay out these sorts of notes.

And as a pref holder this would give you far more certainty than you currently have and would certainly help the company along the road to survival. It is not realistic to expect cash upfront in the current state of play for BBI.