Everyone is worried about the asset values at the moment.If all...

Everyone is worried about the asset values at the moment.

If all BBI debt was asset level debt - no worries. As long as the interest cover was there, from direct asset revenue, no one would rock the boat.

The problem is the corporate debt. This debt is probably secured over "all" assets and may trigger the sale of an otherwise viable asset at potentially firesale prices. The corporate debt makes everyone worried.

The EPS debt (BEPPA) worries only the shareholders. BEPPA holders are not getting dividends and they are clearly subordinated to all the secured debt (corporate and asset). BEPPA holders have no power and no leverage over corporate governance.

So ... all the debt holders are lined up in strict order of seniority. The most senior will not see a cent paid out to a more junior debt holder.

They are all as nervous as "long tailed cats in a room full of rocking chairs" in terms of asset valuations. We have just seen three quarters of shocking global asset deflation. There are serious concerns that Babcock & Brown infrastructure deals were highly leveraged, built on wafer thin profit margins and dependent on the continuous flow of cheap easy money ... (less charitable souls may claim their only purpose was to generate fat fees for the "mothership").

If BBI can keep the bankers engaged, that they see where the money is coming from and going to; that the early infrastructure deals can prove decent cashflow and margins ... then BBI will trade through these difficulties.

The shareholders will be significantly diluted. BEPPA dividends and BEPPA/SPARC capital will be paid with the sale of BBI stapled securities. The forced sale of increasing number of stapled securities at ever lower price is the "Dargie Death Spiral" (DDS).

A good, large asset sale will:
- restore confidence in the remaining asset valuations
- clear the troublesome senior corporate debt
- allow more flexibility in dealing with the subordinated debt in a way that avoids the DDS.

My personal view is that the most probable outcome is this this successful navigation around the various "shoals" and "reefs". (But then again, I thought the most probable outcome for BNB was an equity restructure ...).