Brixton Share Discussion Threads

[scburbs] 22/6/2009 14:35

Sommet2,

I think bondholders only have right to repayment in the event of a takeover and a ratings downgrade. I suspect SGRO may be able to prevent this with the rights issue.

However, the takeover will not complete by 30 June. If BXTN do not have a waiver from the bondholders and the covenant is breached on 30 June then BXTN will be in technical default. I believe this means the bondholders are entitled to request repayment on demand.

I think the SGRO rights issue is to deal with the short term bonds and they are probably planning to leave the longer term bonds in place if they can (either that or tender to repurchase at a discount, but the discount will be much lower than BXTN could have got a few months ago). The different bonds do have slightly different covenant tests due to the derivative being included in the 2010 test, but not for the later bonds.

[sommet2] 22/6/2009 12:35

scburbs,
Am I right in thinking that if SRGO take over BXTN the bondholders will be eligible for immediate repayment at par - ie does the T/O trigger a repayment event.You may recall there was speculation in the Telegraph ( I think )that bondholders would try and block the deal and I did not understand why if it worked in their favour.I presume this is why there is talk that SGRO will have to have a big rights issue to repay these bondholders.Just trying to understand the full picture.

[warmsun] 22/6/2009 12:27

Another excellent post, again thank you.

Am I wasting my time hoping for someone else to make a bid then? :-(

Thanks.

[scburbs] 22/6/2009 12:24

Warmsun,

I think the board have lost all trust and have to go. Slow on equity raise, slow on disposals, slow on bond buyback, slow on takeover talks, slow on refinancing/covenant discussions with banks/bondholders.

Having been slow on everything they have effectively backed themselves into a corner and SGRO are well and truly in the driving seat. If there are no competing offers then SGRO will probably win on the cheap. The existing substantial shareholders in BXTN are unlikely to back current management IMV.

It is very difficult for competing offers as they need to deal with the bonds. BXTN do not appear to have a 31 July extension on the bonds and, therefore, bondholders may be entitled to repayment as of 30 June. This would make it very difficult for anyone else to launch a takeover as the financial firepower required is substantial. It might be possible to restructure the bonds as IRET did recently, but BXTN is in a weaker position than IRET.

Whilst BXTN is undervalued at the moment they don't appear to have a viable alternative strategy to being taken over.

[hamsterape] 22/6/2009 12:19

For supposed arch-rivals the BXTN board seem to have caved in
rather more readily than you would have thought.

[warmsun] 22/6/2009 12:15

scburbs,

Informative posts, thank you. Here's hoping other people (potential bidders)out there are also aware of what you are saying.Are the Board actually looking after the owners (shareholders, ie us!) interests here?

[spud brown] 22/6/2009 12:11

looks like im not the only one, share price heading up

[spud brown] 22/6/2009 12:09

just bought into this as am hoping/betting that the initial offer is raised, or that another offer comes to the table now that segro have shown their hand

[scburbs] 22/6/2009 12:09

The offer from Segro is probably similar to the profit that BXTN will have made on its swaps since 1 January 2009! This attributes a net value of nil to the rest!

[scburbs] 22/6/2009 12:07

Very poor journalism from the FT (Just because MAB made a mess of derivatives doesn't mean everyone else has!).

At the risk of repeating myself, the improvement to be recorded in the June balance sheet is the £78.3m to 28 February (see below) plus the additional benefit of long term interest rates having increased since February (link below).

"Since the beginning of 2009 long term rates have increased from the low point of December 2008 and as at the end of February 2009 the fair value provision of derivative financial instruments had reduced by £78.3m to £94.9m. On a pro forma basis this reduces the net debt/equity ratio based on IFRS net assets to 123% from 142% at the end of 2008. Increases in short and long term rates from current levels will further reduce the fair value of these instruments." [From the Finals]

[shaf200] 22/6/2009 11:53

I knew I should have got at around 60p- human greed my friend!!
I dont know if this is a makes the pain easier-but I hold shares in SEGRO too?

[kibes] 22/6/2009 11:43

shaf200 - yes you are right. However it may not be the end of the matter, other offers are possible.

[shaf200] 22/6/2009 11:35

Gentlemen-please fill me in for the drop in Brixton share price? I'm assuming that this is due to SEGRO offering 1.75 worth of shares per 1 Brixton share- at current price this is roughly comes to 41pence for each Brixton share, hence Brixton is roughly trading at 41pence now?

Thanks for the clarifying the matter?

[kibes] 22/6/2009 11:20

1.75 times Segro share price is not enough. Shareholders should tell Segro to get stuffed in my opinion. And start looking for a new board. As for the covenants will the banks foreclose or will they just raise the interest rate? Personally I am willing to run the risk and would be prepared to put money in for a BXTN rights issue if necessary.

[hamsterape] 22/6/2009 11:17

From FT Alphaville:-

What the market missed:
An interest swap that went very badly wrong.From Brixton's 2008 annual report (page 29).

The market value of our net debt as at the end of 2008 was £730.0m compared
with a book value of £862.2m. This reduction of £132.2m compares with £13.5m
at the end of 2007 and is equivalent to 49p per share.

This amount is not recognised in the balance sheet unlike the fair value
provision of derivative financial instruments which increased by £138.3m to
£173.2m at the end of 2008, equivalent to 64p per share. Of this increase,
£123.2m arose in the second half of 2008 and this was due to the ssignificant
reduction in short and long term interest rates in November and December

Actually I can't understand what that is saying - it sounds more like there
has already been a write-down but that the improvement of £132
hasn't been included in the balance sheet.

It further goes on to say that the provision is due to the fall in short-term
rates and would be reduced if rates were to increase - this point was
highlighted by another poster recently.

So, contrary to what the journalist has interpreted, there seems to be a
market-value improvement that has yet to appear on the balance sheet,
plus the further possibity of an improvement if rates go up.

[warmsun] 22/6/2009 10:08

Hamster,

Given the time restraints (which I was always worried about with each passing day), did they have much choice?

edit,
Wishful thinking perhaps but I firmly believe we will get a new white knight entering the picture now that SGRO has shown its hand.

[hamsterape] 22/6/2009 09:51

Perhaps the intended final offer is a bit higher but SGRO are making this
lower offer so that a higher (yet still miserly) offer will be
more readily accepted.

What worries me about this theory is that the BXTN board seem to have
agreed to put the lower offer forward.

[warmsun] 22/6/2009 09:35

I can only guess that maybe it is thought a higher bidder may emerge.

[fireplace22] 22/6/2009 09:28

we're still 9% above the bid price, are we expecting this to drift lower or is the price expecting further, hopefully positive developments?

[hamsterape] 22/6/2009 09:27

So what happened to these supposed "other" potential bidders that the
Brixton board claimed to be speaking to?

[willyworm2] 22/6/2009 09:22

Hi scburbs,

sadly not, as I said got too greedy. Had this in my "who dares wins" portfolio and was hoping for a bit more, never imagining the downside would be any less than 2.5 SGRO to one, still a profit is a profit...

[sommet2] 22/6/2009 09:19

I have decided to stay in.IF SGRO win I believe the enlarged group will be much stronger financially and the worries about loan covenants will disappear.SGRO will take out the BXTN bond holders one way or another.It appears that no party wants to sell any more assets unless they are forced to and with the commercial property market nearing a bottom who knows we could even see prices moving up in 12 months time.I know it is a risk but I believe these two companies are much stronger together and with the money worries over the BXTN property portfolio will be valued nearer true value.

[scburbs] 22/6/2009 09:07

Morning Willyworm, Did you sell half in the 70's as planned or did you hold on to all of them?

[willyworm2] 22/6/2009 08:50

I'm out at a reduced profit, got too greedy I'm afraid. Looks like we're up the creek without SGRO, but surprised that they are down on the day as this looks a much better deal for them than was anticipated on Friday.