Info from Huntley's if you are interested? Makes more sense of...

Info from Huntley's if you are interested? Makes more sense of the present value than simple statements as "they are undervalued"

They are not undervalued, they have a huge can of worms ready to spill...

"Until this week BBI had navigated the credit crisis with less damage to its credibility than other B&B funds and leveraged infrastructure vehicles. The lower security price invalidated the former business model of equity raisings to fund fee-generating acquisitions managed by B&B, but the company’s announcements were generally consistent with each other and the disclosure was satisfactory. The situation changed substantially for the worse with Wednesday’s suspension of distributions on the stapled securities (BBI), and even the dividends on the preference shares (BEPPA), until further notice. It was only in late August, after the capital management review, that directors guided to a 10.0c distribution for FY09 paid out of free cashflow, defined as EBITDA less net interest expense, cash tax and recurring capex. This new formula was said to be prudent and sustainable. Admittedly it was subject to no material adverse change in capital markets. BBI now says ‘The Boards consider that in light of the current uncertainty in credit markets resulting from the global financial crisis, the payment of distributions is not currently in securityholders’ best interests. We consider that securityholders’ interests are better served by preserving operating cash flows within the business to reduce debt rather than being paid as stapled security distributions and EPS dividends.’ The suspension of distributions after a comprehensive capital management review and the launch of a more conservative distribution policy highlights how tight BBI’s capital and cashflow position is and how much it has deteriorated in just two months. There was no explicit disclosure in the announcement of what in particular has worsened for the group, which worries us. Our impression is the group is grappling with rapidly changing or deteriorating credit market conditions and might not know exactly where it stands. Clearly the group is finding it so difficult to cope in the credit crisis that what it says to the market should be considered very carefully. Suspension of distributions may well be in the best interests of securityholders but should have been announced earlier. The tragedy is the operational performance of the underlying assets is in line with expectations and the unlisted market for these assets is prepared to pay reasonable prices. Just a day before BBI suspended distributions the group sold 50% of New Zealand energy transmission utility Powerco to QIC for 25% above its purchase price and a fairly reasonable enterprise value to EBITDA multiple of 9.3x. This raised NZ$400m for debt reduction and was a pleasing outcome in markets thought to be difficult for sellers. We are relieved we kept the high-risk tag on this stock and didn’t publish a valuation but after Wednesday’s announcement we’re removing the High-Risk Buy call and switching to Sell. Despite BBI’s quality assets it will be a long time before we could recommend BBI for our mostly conservative investors. Ahead lie months of uncertainty, strong share price volatility and the risk of more unpredictable bad news, for example a deeply discounted equity raising. BBI achieved a good price for Powerco but there is the question whether the proceeds from this sale and potential selldowns in Euroports and WestNet Rail will reduce the $2bn debt burden by enough. Surely an economic recession in Europe will reduce port volumes for Euroports and a downturn in the WA iron ore mining industry will reduce volumes for WestNet Rail. There could be dual hits from lower revenues and lower asset valuations. BBI says the suspension of distributions does not reflect any requirements of BBI’s lenders. This is a positive"