Brookfield Asset Management Inc. (BAM, BAM.A.TO) and Brookfield Infrastructure Partners L.P. (BIP, BIP.UN.TO) Thursday announced an agreement with Australia's Babcock & Brown Infrastructure, or BBI, to sponsor a comprehensive restructuring and recapitalization of BBI. Closing of the recapitalization is expected to occur in late November 2009.
BBI has a portfolio of transportation and utility assets located in Australia, the U.S., the UK, continental Europe, New Zealand and China. Brookfield will own 35% to 40% of recapitalized BBI. It will be a global infrastructure company traded on the Australian Securities Exchange focused on the transport, energy infrastructure and utilities sectors with approximately A$5.5 billion, or US$5 billion, of total assets.
Under the agreement with BBI, Brookfield Asset Management and Brookfield Infrastructure have jointly and severally subscribed for a proposed investment of approximately US$1.1 billion in stapled securities and assets of BBI. The proposed investment is comprised of the purchase of approximately A$625 million to A$713 million, or approximately US$555 million to $635 million, of stapled securities for a 35% to 40% interest in the restructured BBI.
The investment also includes A$295 million, or approximately US$265 million, for the direct purchase of a 49.9% economic interest in Dalrymple Bay Coal Terminal, or DBCT, in Queensland, Australia, and 100% of PD Ports business in northeast England from BBI. Immediately after the purchase of PD Ports, Brookfield will repay GBP 100 million, or approximately US$160 million, of debt at PD Ports.
Further, Brookfield Asset Management and Brookfield Infrastructure said that they have entered into an agreement under which Brookfield Infrastructure is being offered the right to act as the primary investment vehicle to acquire the BBI stapled securities and an approximate 50% interest in the direct assets.
Brookfield Infrastructure plans to fund its interest in the transaction by raising equity. Brookfield Asset Management will subscribe for its pro rata share of any equity raised by Brookfield Infrastructure, subject to Brookfield Infrastructure unitholder approval.
The companies said that a meeting of Brookfield Infrastructure's unitholders will be called shortly to approve the participation of Brookfield Asset Management in any Brookfield Infrastructure offering above a specified threshold as required under Canadian securities laws. Brookfield Asset Management will acquire any portion of the investment which Brookfield Infrastructure does not acquire.
Further, BBI plans an equity raising of A$1.5 billion, comprising A$625 million placement to Brookfield, A$625 million placement to institutional investors and A$250 million Security Purchase Plan, or SPP. Brookfield has agreed to sub-underwrite up to A$87.5 million of the SPP. The A$1.8 billion of cash proceeds from BBI's equity raising and asset sales will allow BBI to repay its corporate debt outstanding, the companies noted.
In addition, the recapitalization plan includes the repayment and restructuring of BBI's debt facilities, including the repayment of all existing corporate debt, excluding approximately A$119 million of NZ bonds, and the repayment and extension of certain asset-level debt. The companies also plan a simplification of the capital structure, including the conversion of the BBI EPS Limited Exchangeable Preference Shares into BBI stapled securities.
Further, the companies said that Australian Energy Transmission and Distribution, or AET&D, and Cross Sound Cable, or CSC, assets and the associated indebtedness would be separated from the remaining BBI assets, which will be treated as "held for sale". BBI's name will also be changed to Prime Infrastructure.
Brookfield Asset Management has also agreed to provide management services for a fee to both AET&D and CSC and will have the right to acquire BBI's interests in these assets on certain defined terms.
Commenting on the transaction, Sam Pollock, Senior Managing Partner and CEO of Brookfield's Infrastructure Group, stated, "It will add approximately US$8 billion of assets under management to Brookfield's infrastructure platform and expand our presence in the important and growing transportation and energy infrastructure sectors."
According to David Hamill, Chairman of Babcock & Brown Infrastructure, "Brookfield's comprehensive recapitalization proposal has the full support of our management team and the BBI Board and we believe it is the best alternative available to BBI's securityholders for restoring our balance sheet and building on our significant strengths for the future."
If the agreement is terminated, Brookfield will have a right of first refusal in respect of a future sale of DBCT and a call option in respect of PD Ports, in each case for a 12-month period, and a termination fee.
Upon completion of the recapitalization, pro forma proportional debt leverage is expected to decrease to approximately 68%. BBI will establish a three-year A$300 million corporate borrowing facility, which is expected to be undrawn upon completion of the recapitalization, providing BBI with additional liquidity.
BAM rose US$0.12 and closed Wednesday's trading at US$22.64, on a volume of 725,800 shares.
BAM.A.TO closed Wednesday's trading at C$24.06 on the TSX.
BIP ended at US$16.56 on Wednesday, up US$0.06, on a volume of 33,500 shares.
On the TSX, BIP.UN.TO closed Wednesday's trading at C$17.30.
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