what to do about bbp

http://www.thewest.com.au/aapstory.aspx?StoryName=507138

ABN Amro Morgans client adviser Craig McDonald said there was a chance BBP could be taken over.

"We're very wary of BBP at the moment," Mr McDonald said.

"They're sitting on asets of $4.1 billion and now debt's at $3.7 billion, so there's really only $400 million of equity value there.

"And it's very difficult to commit to a company that just pops up with another writedown.

"The Tamar Valley generator was a good asset - selling it for a loss is not a good look."

BBP still has interests in 12 operating power stations and four under construction and has appointed UBS to consider various expressions of interest already received from third parties.

When asked about a possible takeover of the fund, recently appointed independent chairman Len Gill said "a range of options" would be considered and declined to specify if private equity was involved.

Mr Gill said it was too early to consider ownership issues around the management rights of the fund in the event of a full sale.

"Perhaps that will come up in another six months," he said.

B&B is on track to collect $24 million in management fees from BBP for fiscal 2008 despite the fund's dismal market performance, funding mishaps and clumsy disclosure by its executives.

Mr Gill was appointed after investors lost confidence in the BBP in May when it revealed a $300 million funding shortfall weeks after assuring analysts its balance sheet was sound.

Mr Gill said that no discussions had been held between BBP and its parent about a possible waiver of the management fees, but added that fees would be explored under the UBS strategic review.

He said BBP had not yet "progressed to the matter" of whether its executives would receive bonuses for fiscal 2008 and that such information was usually disclosed in its annual report.

BBP had good quality assets that generated stable cash flows, Mr Gill said.

But he said that there was "no denying" that the fund was built on a "rocky financial foundation".

Mr Gill said the fund's ultimate goal was to "put those assets in the space where they deliver the cash flows they are delivering but on a lower-geared footing".

The recommencement of distribution payments to securityholders would not necessarily depend on BBP reaching its optimal debt position, he said.

However, BBP said payment of distributions would depend on the "company's ability" to both refinance and pay down debt, after it cut its second half distribution in June.

Together with two previously announced divestments, the Tamar sale had reduced BBP's debt by $770 million.

The fund also announced it had extended a $120 million debt facility to March 31, 2009.

Post completion of the Tamar sale, debt would remain at around $3.7 billion, serviced by an average interest rate of around 8.8 per cent.

The guidance from BBP prompted B&B to reaffirm its own annual earnings guidance delivered last week.
AAP