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.

[Contrarian]

$53m rent bill could fell Babcock survivor
DANNY JOHN AND CAROLYN CUMMINS
May 24, 2010

AN ''ONEROUS'' rental bill agreed on when the good economic times were rolling could finally bring down the surviving operational arm of the failed Babcock & Brown group.

Babcock & Brown International Pty Ltd - in which B&B's main assets were housed and ringfenced from the collapse of its parent last year - has warned it will have to call in the administrators if it can't strike a new deal with the landlord of its Sydney headquarters.

BBIPL has been required to make a provision of $53 million in its latest financial accounts to cover the leasing terms for the space it has rented at Chifley Tower, one of the city's most prominent skyscrapers.

A variety of offshoots that sheltered under the B&B corporate umbrella were based at Chifley which has views over the Domain and the Harbour.

But the advent of the global financial crisis saw them and the main company encounter such severe financial difficulties that most of the B&B businesses cut back on their space in the tower (partly as a consequence of job cuts) or move out altogether to cheaper premises.

BBIPL escaped collapse only because it owes its bankers more than $2.5 billion. They are keeping it on life support while it spends the next two years selling off the group's remaining real estate, transport and power-generating assets to pay off its huge debts. However, the company is still responsible for the entire group's lease on Chifley even though it now takes up one floor of the tower only. It is understood to be paying as much as $15 million a year to lease another eight under-used or empty floors.

According to BBIPL's accounts for the financial year ending December 31 2009, the company is engaged in talks with the 42-storey tower's owner, the Singapore Government Investment Corporation, over its attempt to terminate the lease.

BBIPL added that the $53 million provision does not reflect the actual sum the company estimates it will end up paying SGIC to get out of the leasing deal.

However, there is still a real danger the company could be required to meet its obligations in full - a move which could result in it following B&B to the corporate graveyard.

''[Because] the company guarantees payments due under the lease, if a termination agreement cannot be reached with the landlord then it is likely the company would be placed in voluntary administration,'' BBIPL's chief executive, Michael Larkin, said in his sole director's report.
--------------------------------------------------------------
There is another article on smh.com.au stating they are not even trying to sublet about 9 floors, to the which has leasing agents stumped, as they have demand..

[Enumerate]

Fact of the matter is that BBIPL (known, by Australians, as "Bipple") only exists because of the largess of the banking consortium (now the bank and hedge fund consortium). Administration of BBIPL would likely have a positive impact on the information flow from BBIPL and subsidiaries to BBL.

Knowing Larkin, there must be another reason why the administration of BBIPL is being "engineered" - the issue of the lease must be a "straw man", selected to force administration in support of a wider agenda.

The other interesting point is that secured creditors, under Australian insolvency law, cannot vote at a creditors meeting without giving up their secured status. BBL is a large, unsecured, creditor of BBIPL. Larkin is not about to hand control of the BBIPL administration to the Deloitte Liquidator.

Maybe the hedge funds have some aggressive plan to "trump" the BBL subordinated creditor rights by accepting unsecured status for their debt to control the administration?

I hope that this event crystallises focus on the "fairness" of the "restructuring agreement" that Larkin et al put together with the banks. These developments could prove to be a significant opportunity for BBL noteholders.

[i_claudius]

I understood the liquidator was to conduct the public examinations over the past 2 weeks.
Anyone seen any reporting on this?