from http://www.businessspectator.com.au/bs.n...

There is an interesting ‘’money or the box’’ element to the decisions security holders in Babcock & Brown Infrastructure face as they contemplate how to respond to the proposed Brookfield Asset Management-led recapitalisation of their group.

As the independent expert, Grant Samuel notes repeatedly in its assessment of the proposal – which will see $1.8 billion of new equity injected into BBI – that the group has no choice but to raise equity. With $8 billion of debt at the asset level, another $1.2 billion at the corporate level, $300 million coming due early next year and $3.2 billion maturing over the next two years BBI is teetering on the brink of insolvency.

However, the issue that is worrying the security holders, and more particularly holders of BBI’s exchangeable preferences shares (EPS), is whether it needs quite as much equity as the Brookfield proposal involves.

For ordinary security holders, whatever happens they have effectively been wiped out. Under the Brookfield scheme they would be given 4 cents per security, or a total of about $104 million, more as an incentive to support the proposal than as a reflection of any residual value. Some of those security holders are so bitter about their BBI experience that they say they’d rather see it fall over than allow the existing managers a continuing role.

For similar reasons, the proposal would see holders of the New Zealand-listed SPARCS securities paid out at their full face value of $100 million to ensure they don’t have an opportunity to torpedo the plan.

For the EPS holders, the equations are rather different. The face value of their interests is $779 million, but they are being offered $48 million for accrued dividends and an estimated $285 million of value in the form of BBI ordinary securities. They would end up with just under 16 per cent of BBI if the Brookfield proposal succeeds. Brookfield would own between 35 per cent and 39.9 per cent.