Babcock & Brown Notes (BNB010)

[Enumerate]

These subordinated notes have residual value based on the liquidation process being conducted by Deloitte (BBL).

They are not directly tradeable - however there may be interest in discussing prospects for recovery. I understand that there is a reasonably significant holder base in New Zealand (based on the funding of the Powerco takeover).

Any interest in a discussion?

[i_claudius]

Hi Enumerate

I hadn't seen your post here...would have replied earlier.

This seems to have gone very quiet since the $400 contributions to "further investigations" last year.
Have Deloittes made any progress on that?

[COLIN]

This seems to have gone very quiet since the $400 contributions to "further investigations" last year.
Have Deloittes made any progress on that?

My friend would also like to know. (For those new to this discussion, there is another comprehensive thread on the NZX section.)

[Enumerate]

The AUD$400 was a contribution to fund the investigation phase for further legal action.

My understanding is that a total of AUD$400k was raised which was deem sufficient, by the Deloitte liquidator, to pursue both Australian and American lines of investigation. It should be noted that one individual contributed AUD$100k to the legal fund.

The key investigative step, in Australia, was to be the "public investigation". This was to be held late last year but was postponed until this year due to illness of key Babcock people and the enormous volume of information that the liquidator is sifting through. The format of this public inquiry by the liquidator is that he can summon and question anyone concerned with the collapse - put them on oath - and pursue any line of questioning. This is a very critical and powerful investigative tool.

B&B Subordinated Noteholders are in a unique position. They put BBL into administration (contrary to director advice). The B&B shareholders, as a consequence, have had their interest in the company wiped out. The AUD$600million (in capital value) noteholders now control what used to be a AUD$13billion company!

All the bank debt is with the still solvent (by the grace of the bankers) operating unit BBIPL. The bankers have had put in place a number of "firewalls" that prevent the owners of the BBL - the owner of BBIPL from effecting any reasonable control of their assets. How this structure was in the interests of the former shareholders and now noteholders will be a significant matter for investigation and inquiry ...

There are some direct sources of recovery from litigation and the claw back of assets.

Anything that BBL recovers will accrue directly to the noteholders. The banks won't get a sausage - because of the corporate structure of BBL and BBIPL. The bankers tried to get noteholders and shareholders to commit suicide. They succeeded with the shareholders (who should have voted the lot into administration). They did not succeed with the noteholders (the NZ noteholders put BBL into administration).

Noteholders have done everthing to protect their interests. This has taken a degree of collective courage that is quite remarkable in terms of recent corporate history! BBL is in liquidation with a liquidator with adequate funds to investigate without scrimping.

The liquidator must now call the shots to bring this episode to a conclusion. He has the power, he has the money, he has the professional support.

Noteholders must now simply wait for the process to grind ahead. "The wheels of justice grind slowly, but they grind exceedingly fine"

Last decent press coverage was in the AFR. Look to TheAustralian for the best coverage during the public investigation - when it begins. I will post updated dates to the thread as information comes to hand.

[i_claudius]

Thanks for that summary Enumrate.

I have followed the discussion in the NSX section with your comments and appreciate the clarity you bring to this awful story.
It still baffles me how this infrastructure investing company could come so badly unstuck but I have no sympathy for the bankers at all.As I understand it,they contributed substantially to the collapse by withdrawing funding as the global credit crisis deepened and then tried to mitigate their losses by screwing noteholders ,shareholders and anybody else with an interest in the group.

I do think Deloittes could do a better job of keeping those of us with a continuing interest better informed as to progress.

I'm assuming you're Australian? so maybe be different but for NZ tax residents what's the treatment if you are a noteholder on revenue account...total writeoff,impairment charge,something else?

[COLIN]

My grateful thanks also, Enumerate. History in the making.

[Enumerate]

I'm assuming you're Australian?

No, I'm a Kiwi. However, I am not a tax lawyer/accountant. I feel confident that there will be some recovery on the Notes ... but how you deal with any shortfall is a highly technical question.

I think the lack of news from the Liquidator is due to the fact that they are about to the bring the "legal stew" to a boil. They probably do not want any information to go to the "other side" in preparation for the "shock and awe" of the opening rounds of the public investigation.

Remember, they went from a declared profit of about AUD$690million at half year to a multi-billion dollar loss at full year. The Administrator report highlighted numerous director breaches. There are quite a number of people and organisations that will be worried by what is uncovered in court.

The extra time in preparation can only work in favour of the Noteholders.

[Enumerate]

Public Examination of the Directors and Management to be scheduled for June.

Issues with Court bookings and the slow flow of information from BBIPL. At least there is now plenty of time to prepare.

[Contrarian]

Babcock in black after support from banks
ERIC JOHNSTON
May 18, 2010

THE key operating business of collapsed infrastructure financier Babcock & Brown has swung dramatically back into the black, with a $7.3 billion turnaround in full-year profit.

However, the results - including a hefty $2 billion headline profit - do not signal a revival in fortunes for the fallen empire. Babcock & Brown International remains on life support from its bankers.

Documents obtained by BusinessDay reveal that Babcock & Brown International and its bankers recently finalised a ''pay if you can'' agreement covering a corporate debt facility of more than $2.57 billion.

This essentially means Babcock & Brown International's bankers have written off their entire exposure to the collapsed group, allowing it to pay down its debt only as cash is generated - mostly through asset sales.

''The group remains reliant on the support of its lenders through the continued extension of certain loan facilities and in particular that the lenders take no action in respect of existing breaches of the syndicated facility agreement,'' Babcock & Brown International's latest accounts said.

The listed Babcock was placed in liquidation March last year. It was essentially a shell that had a 99.8 per cent stake in the privately held Babcock & Brown International, the key operating business of the empire.

Only one director - former Babcock & Brown chief executive Michael Larkin- remains on the Babcock & Brown International board as it pushes ahead with its wind-up. Former Babcock chairman Elizabeth Nosworthy and a second director, Pat Handley, resigned in May last year.

The latest accounts show Babcock & Brown International notched up a $2 billion profit in calendar 2009. This compares with a loss of $5.3 billion a year earlier, largely due to savage write-downs.

The latest results were struck on $1.45 billion worth of revenue - mostly on asset sales - but restructuring of debt allowed the company to write back $2.7 billion.

Before this relief on corporate debt, Babcock & Brown International would have handed down a loss of $835 million.

The accounts also reveal the depths of Babcock's problems, with the company's liabilities outstripping assets by $3.67 billion. Without support from banks, this would be enough to tip any company over the edge.

Babcock & Brown International's auditor Ernst & Young warned there was ''significant uncertainty'' whether the company could continue as a going concern. It also raised doubts over whether Babcock & Brown International could raise enough funds from asset sales to cover its liabilities.

Source: The Age

[Enumerate]

The Public Examination of B&B Management and Directors has been delayed to July. The list of people under examination has been increased and now includes Ernst & Young (the auditor). The examination will now take place over 7 days.

A litigation funder has been appointed to pursue selected recovery actions in the US.

The character of the banking consortium has changed, significantly. Alot of recovery hedge funds have bought the senior debt from the banks.

Despite the delays, everything is moving as to plan .... confidence people!