sparcs noteholders meeting

On Friday morning I went to the SPARCS meeting. There were about 20 people there, mostly suits. Probably only about 10-12 genuine noteholders and also a couple of Mums and Dads.

In the end I did not need to ask any questions because another gentleman asked them all. Either he is a HC reader or he was simply in touch with all the BBI happenings.

Just for a bit of background, SPARCS bonds came about from the takeover of Powerco in NZ. For those not familiar with Powerco as a company, Powerco was a collaboration of several council owned power companies from the middle of NI of New Zealand and these were effectively demutualised and joined up probably sometime in the early 90s from memory. Anyhow, the point is some of the larger SPARCS noteholders are these councils and so that are not natural institutional holders.

Anyhow, a variety of questions were asked, some specific SPARCS questions and others BBI questions.

Jeff Kendrew from BBI was there, with a few underlings.

The SPARCS questions were as follows:

1. The instos were unimpressed that they got a waiver not to do an independent report, due to time constraints. Said that meant people had to evaluate the deal themselves. Not fair. Furthermore as the share price has moved from 3 cents to 10 cents, the data in the documents for the meeting are now well out of date. (I thought that was a bit harsh).

2. They asked Jeff Kendrew as to whether he was able to represent both SPARCS holders and BBI holders and as to whether his role of director of both companies was a conflict of interest? JK was none too impressed by this and curtly answered he was not conflicted. (Interesting question).

3. It was also asked how did the proposed amendments come about. Were they BBI driven amendments or noteholder driven? After a bit of probing, it was established that BBI had proposed them and had discussed them with major noteholders but could not consult with everybody. So they were BBI driven changes. Body language was obvious that the BBI people really wanted this amendment to happen.

4. There was an interesting point on the proxies. One of the instos, having done a proxy then subsequently revoked it until they could attend in person. (that was an ominous sign as this insto had changed its mind and I suspect someone else helped them to change it).

5. There did seem to be an attitude from a few SPARCS holders as to why they should give up their rights to convert now and run the risk of waiting to Nov 2010, and in the interim the company does not make it.

6. It was asked why the amendments, which were blocking out dividends, did not also block out buybacks on the ords and the prefs? They said this was the furtherest from their minds right now and in any case the corporate facilites would not allow for this at all, so not going to happen. The BBI people were pretty clear about that.

7. One of the old fellas (good on him) asked what is the likelihood of SPARCS being able to continue to pay their interest? Reply was that this is not a problem at present, but interest does depend on intercompany loan from BBI Networks up to BBI continuing to be serviced. They added there was money available at present to pay interest.

Then there was a series of BBI related questions, as follows:

1. What is the problem with the delay on the Euroports sale? Answer was there are still conditions to be met by June 30. They were asked were these conditions able to be met the BBI people said they meetable and they are working on it with urgency. They were asked if these were not met by June 30, could they be extended again? They were a bit shifty on that one, so would not bet your house on it going through if there is another delay.

2. What is the latest situation on the DBCT sale? They said there was another 2 months to run in the 2nd round of the tender process and they were not inclined to rush the process at all and botch it up. Furthermore, JK said it will depend on what price they receive as the first round prices were non binding (although I got the impression the bids were reasonable bids). He was adamant it will not be sold if it does not increase equity for the shareholders. He said the point of assets sales is to unlock the equity in the assets being sold to repay corporate debt. If they cannot achieve this, they are not going to sell assets for the sake of it.

3. If a DBCT sale is agreed, how long will it take to get regulatory approval for it to go ahead? It is all a function of who the buyer is, especially if it is a port user. Usually 2-3 months. (So it could be be well towards the end of the year before we would actually see any DBCT money).

4. What is the situation regarding the sweep facility and how flexible are the sweep banks if money was required somewhere at an asset level in an emergency situation? JK said obviously you would have to deal with problems as they arise, but he did point out that the corporate level banks and the asset levels bank are pretty much the same banks, so if they screwed the company in some way at an asset level they would effectively be screwing themselves at the corporate level and that would not be a very smart thing to do. Furthermore, JK added that apart from the port assets where volumes are understandably down, all the remaining assets are regulated and are all operating to expectations. He said really there are not a lot of problems at the asset level and the problem really is at the corporate level. (he was pretty clear about this).


At this point the votes were cast and the meeting was adjourned and the count was made.

Then the vote came in and it was (from memory) about 60M for the vote and 49M against, so the level of 75% was not achieved and the vote was lost.

The BBI people were none too happy. To be honest they looked pretty stressed about it all and there were a lot of muttering under one's breath. It was obvious one of the NZ instos stiffed them. Not too sure how smart that was, when it comes time to sell a gazillion BBI shares all at once. Time will tell.

At has already been pointed out, the conversion of SPARCS bonds into shares does help in a little way in terms of viability, but it is a drop in the bucket really.

My take is it is really clear that 100% of DBCT needs to be sold. If this does not happen, it could be a real problem for the overall viability of the company.

I really need to say this. Owning BBI and BEPPA I would consider to be a very high risk proposition at present. Way more risk than owning BBI bonds. I think Melua's point that BBI is now effectively a punt on the sale of DBCT is spot on.