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REITData -> TalkStock -> SGX - Trusts / Funds -> Babcoc k & Brown Structured Finance Fund
Post Info TOPIC: Babcoc k & Brown Structured Finance Fund
KK


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BBSF - OCBC
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18-May-07

Strong yield

Diverse portfolio of assets. Bab**** & Brown Structured Finance Fund (BBSFF) invests in a diverse portfolio of assets. These are broadly classified into loan portfolio and securitisation assets, operating lease assets, and alternative assets. The latter includes renewable energy financing and music copyright assets, which are medium term assets. In terms of currency exposure, it has about slightly less than half of its assets exposed to the USD, with AUD in a close second at 39%.

What is an operating lease? It is similarly to REIT, except that instead of real estates, operating leases are on other fairly long-term assets, and for BBSFF, these are in aircraft and rolling stocks. Another possible source of revenue comes from the potential gains from the sale of assets. As an illustration, BBSFF holds an 11.5% stake in JET-i, which owns 37 narrow body aircraft. Jet-i was acquired for S$25m, or at less than 85% of valuation. And should Jet-i be disposed by 3Q 2007 as planned, there is a good likelihood of capital appreciation from this investment. In addition, it has a 49.5% stake in Bab**** & Brown Rail North America (BBRNA), which is the owner and lessor of more than 6500 freight car rolling stock. BBSFF is also able to leverage on the Bab**** & Brown Group, which has been in the operating leasing and structured finance business for nearly 30 years. This will also aid BBSFF is terms of its acquisitions and the

management of its assets.

Attractive yield. BBSFF is a fairly undiscovered good yielding instrument. As it is the first of its kind to be listed on the SGX, we believe that there is still a lack of understanding of the uniqueness of this instrument, reminiscence of the early stages of the Singapore REIT market, when the pioneer-listed REITs were offering yields of 8-10%. Against other yield linked equity instruments, which are offering about 4-7%, BBSFF is offering a good dividend yield of about 9% and this return is already locked in for FY07 with a guaranteed payout of 10.2 cents (4.7 cents in 1H07 and 5.5 cents in 2H07). BBSFF distributes tax free semi-annual dividends. Since listing, it has distributed 0.53 cents. We do not have a rating on BBSFF.



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KK


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BBSF - BT
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16-May-07

Bab**** & Brown raises dividend guidance

BAB**** & Brown Structured Finance Fund (BBSFF) has upped its dividend guidance for the year ending December 2007 by 7 per cent after recording better-than-expected earnings of $9.5 million for the first quarter.

The fund, which holds a diverse portfolio of operating leases, securitised loans and alternative assets in the United States, UK, Europe and Australia, was listed on Singapore Exchange last December.

It clocked a 'strong performance' that was 'ahead of expectations', thanks to earnings-accretive acquisitions that have helped its portfolio grow by over 20 per cent over the course of the year, said managing director Sylvia Wiggins in a conference call.

BBSFF confirmed its dividend guidance of 4.7 cents per share for the first half, but increased its dividend guidance for the second half from about 4.8 cents to 5.5 cents per unit. The full-year dividend guidance of 10.2 cents represents a 9 per cent yield at yesterday's closing price of $1.13. Dividends for the year have been fully hedged against exchange rate fluctuations, BBSFF said.

The fund achieved revenues of $14.6 million from sources including distribution income, interest income and rental income, and had earnings per share of 2.5 cents. There are no comparative figures for the corresponding period last year, as the fund was only incorporated in April 2006, it said.

At present, the fund's operating lease assets include direct and indirect ownership in commercial aircraft, debt secured against aircraft fleets and railcars.

The loan portfolio includes residential and commercial mortgage loans, business loans backed by receivables and loans backed by intellectual property or other debt.

Alternative assets include loans granted to develop ethanol facilities in the US and biodiesel plants in Australia, loans for real estate projects and music copyrights. Macroeconomic conditions will determine the performance of assets and will influence where future investments are made, said BBSFF.

This year's global economic growth is expected to be less than last year's, but with strong growth continuing in the Asian region, it said. The fund thus plans to continue to look for acquisitions in its four markets. 'Economic growth in Asia continues to be monitored', but the fund 'remains disciplined in its approach to acquisitions', it added.

Ms Wiggins said the fund plans to enter the US subprime mortgage market in the third quarter. Lending standards have tightened and spreads have widened, but it wants to observe the market first. It could also make further investment in the UK housing market, where low unemployment is expected to help maintain the market despite a possible rise in interest rates.

-- Edited by KK at 19:41, 2007-05-16

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KK


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28-Apr-2007

Bab**** & Brown upbeat about 2007 prospects

AT ITS first annual general meeting, held at Equinox Complex yesterday, Bab**** & Brown Structured Finance Funds (BBSFF) assured shareholders it is confident of meeting or exceeding its 2007 dividend projections, given the strong start to 2007 across the fund's three target asset classes.

For a start, further investment in Bab**** & Brown Rail North America is expected to give a regular cash yield in excess of 9.5 per cent a year, instead of the 8.5 per cent anticipated initially.

To achieve growth, the fund intends to utilise available capital resources efficiently. The company, listed in December, may also issue additional shares for expansion. One asset BBSFF may consider investing in is shipping operating leases, when the international shipping value pattern becomes clearer.

Chairman and managing director Sylvia Wiggins said yesterday that BBSFF will have the right to participate in further wholesale aircraft or rail-car portfolios as they are formed by the Bab**** & Brown Group, highlighting the value of the group's relationship in growing BBSFF's portfolio. She also said the company will continue to look for not only acquisitions but divestments of assets where this can deliver total shareholder returns in excess of yield.

BBSFF will exit its investment in Jet-i Holdings this year. If current trends in pricing of aviation portfolios continue, the sale could return a substantial capital profit to BBSFF, Ms Wiggins said.

The mood at yesterday's AGM was congenial, though some shareholders seemed unsure of what constitutes 'alternative assets'. During the Q&A, executive chairman Richard Lees Umbrecht said these can be defined as assets 'not generally accessible to the public . . . with a possibility of capital growth well beyond their current yields'.

Shareholders were told more effort on investment community education will be made in 2007.

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KK


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BBSF - DBS
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21-Mar-2007

Alternative exposure to a high yield stock

Two asset classes are not readily accessible to investors in a listed form. BBSFF is the first listed fund which sources assets originated or identified by two of the five Bab****& Brown core business units - operating lease assets and loan portfolios and securitisation assets.

Yield plus growth opportunities. BBSFF is well diversified with regard to its three target sectors with 29% in operating assets, 31% in loan portfolios and securitisation assets; and 40% in alternative assets. The predominant currency which BBSFF is exposed to is the US$. BBSFF’s
current gearing (debt to asset) is 20%, well below the 35% level.

(a) Operating assets – potential for stable cashflows and capital appreciation. Currently, BBSFF has invested in aircraft and rolling stock. Aircraft leasing rates and values have been rising and BBSFF is exploring various exit strategies. Gains are likely to be substantial given leverage of 85% and acquisition of aircraft at less than 87% of base value.

(b) Loan Portfolio and Securitisation Assets – risks understood by BBSFF enabling attractive returns. BBSFF invests in diversified loans that either have been or will be securitised.

(c) Alternative assets – non-mainstream assets that throw up relative value opportunities. Initially, the focus will be on renewable fuels, alternative energy loan exposure and single obligor structured finance loans. The former can benefit from significant government and tax regulatory advantages while the latter can leverage on the trend of banks losing dominance in the lending business. A total of five catalogues of music copyright assets have been acquired for US$28.4m.

Tapping on the professional management of the Bab**** & Brown Group. The Manager is a member of the Bab**** & Brown Group (BNB Group), a global investment and advisory firm with strong capabilities in structured finance and the creation, syndication and management of asset and cashflow based investments.

Around 75% of BBSFF’s economic income for FY07 is under contract. BBSFF’s dividend from the date of listing to Dec2006 of 0.52Scts will be paid together with 1H07 dividend. We are forecasting 9.55Scts DPU for FY07. Distributions for FY07 have been hedged.

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KK


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BBSF
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BT, Published February 28, 2007

BBSFF nets above forecast, asset strategy on track

BAB**** & Brown Structured Finance Fund (BBSFF) yesterday announced its 2006 results and confirmed that the 9 per cent dividend yield projection and its strategy of acquisition and divestment were on track.

On the fund's tepid share performance since listing some two months ago, a senior fund official yesterday said the fund, which invests in assets not readily available to most investors, is still not well understood by investors.

BBSFF reported a net profit of $5.2 million for the period from listing on Dec 20, 2006, to Dec 31, 2006, and a net profit of $62.9 million for the period from April 24, 2006 (the date of incorporation) to end-2006. Both profits were higher than forecast in the prospectus and due to foreign exchange gains and revaluation income.

The Australian-owned fund, a member of the investment advisory Bab**** and Brown Group which sold units at $1.06 apiece during its initial public offer, said income available for distribution for the 12-day period from listing to end-2006 will be 0.53 cents compared with the forecast 0.52 cents. The increase is due mainly to a higher balance from one of its investments.

The full-year dividend forecast of 9.54 cents plus the 0.53 cents will be paid to investors later this year, with the first dividend expected to be paid in September.

In a BT interview yesterday, Sylvia Wiggins, BBSFF chairman and managing director, said 'a lot of people find the asset classes new and they are not as well understood or perhaps not perceived to be as well understood as Reits (real estate investment trusts) or infrastructure funds'. 'People need a little bit of time to digest where the growth sits in our asset classes,' she said. Since listing BBSFF has traded between $1.01 and $1.11, and ended yesterday down one cent at $1.06.

BBSFF invests in assets such as operating lease aircraft assets, loan portfolio and securitisation assets and alternative assets which have yet to become mainstream. Putting diverse asset classes in one fund gives an active fund manager like BBSFF opportunity to take advantage of macroeconomic conditions, she said.

The Bab**** & Brown group over its 30-year history has developed expertise in being active asset managers, buying and selling assets according to conditions, she said.

'Our assets can be influenced by macroeconomic factors and they are cyclical,' said Ms Wiggins. 'What you want to do in putting different asset classes together, is have the capacity as an active manager to be able to move between asset classes as you are able to see strategic divestment opportunities, or as you assess the macroeconomic circumstances affecting one particular asset class no longer being favourable.' A fund manager of a shipping fund, for instance, would have no place to put his funds in if the shipping industry falls off the cliff, she said. 'We will actively look for strategic acquisitions and divestments; I don't think you hear divestment play very strongly from other fund managers, they look for long-term holds of assets.' That's the difference from other long-term Reit or infrastructure fund managers.

BBSFF investors are 'buying into the fact that we know and understand these assets and we will be able to move those assets around as macroeconomic conditions change', she said. To give investors confidence, the Bab**** & Brown group maintains a long-term stake of 10 per cent in BBSFF.

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KK


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Babcoc k & Brown Structured Finance Fund
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Balloting results are out in SGX announcement. Extracts,

APPLICATIONS AND INDICATIONS OF INTEREST RECEIVED

(a) The Public Offer


At the close of the Public Offer at 12.00 noon on 18 December 2006, there were 12,204 valid applications for a total of 6,470,000 Offering Shares in the Public Offer. In total, these applicants applied for 153,962,000 Offering Shares, with application monies received amounting to approximately S$162.9 million and the Public Offer was approximately 23.8 times subscribed.

(b) The Placement

At the Offering Price of S$1.06 for each Offering Share, indications of interest were received for a total of 536,046,142 Offering Shares in the Placement as at the close of the book-building exercise. As part of the Offering, Bab**** & Brown BBSFF Holdings Limited (the "Vendor") agreed to place an aggregate of 168,860,427 Offering Shares at the Offering Price to the holders of debt securities (the "Warehouse Debt Investors") issued by Bab**** & Brown SF No. 1 Pty Ltd, as trustee for the Bab**** & Brown Structured Finance Trust. Excluding the 168,860,427 Offering Shares placed to the Warehouse Debt Investors, the indications of interest received from institutional and other investors in the Placement were for 367,185,715 Offering Shares. Based on the 316,990,000 Offering Shares available under the Placement, excluding the 168,860,427 Offering Shares placed to the Warehouse Debt Investors, the indications of interest for 367,185,715 Offering Shares under the Placement represent approximately 2.5 times the number of Offering Shares available under the Placement (excluding the placement to the Warehouse Debt Investors).

The Offering of 323,460,000 Offering Shares (excluding the 168,860,427 Offering Shares placed to the Warehouse Debt Investors) attracted a demand of approximately 3.4 times, based on application monies received for the Public Offer, as well as indications of interest received for the Placement.

In connection with the Offering, UBS AG, acting through its business group, UBS Investment Bank ("UBS") and DBS Bank Ltd ("DBS Bank" and together with UBS, the "Joint Lead Underwriters") have over-allocated an additional 35,941,000 Shares, all of which were allocated to the Placement.



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KK


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Babcoc k & Brown Structured Finance Fund
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BT, Published December 18, 2006

Bab**** & Brown IPO: not quite a no-brainer

SOON-to-be-listed Bab**** & Brown Structured Finance Fund is projecting a 9 per cent yield next year based on its offer price - surely one of the most attractive initial public offers this year. But is this a no-brainer investment that investors should rush into?

A look at the asset classes that the fund invests in quickly reveals that it warrants a serious look. However, attention should be paid not just to its promising prospects but also the associated risks. Bab**** & Brown said that its initial portfolio, acquired for $397.7 million, consists of near-equal allocation across assets like biofuels financing, loan portfolio and securitisation such as collateralised debt obligations (CDOs), and operating leases in aircraft and rail. The IPO consists of 6.47 million public offer shares and 316.99 million placement shares at $1.06 each, and Bab**** & Brown said that investors can expect to receive total payout of 10.06 cents per share by the end of next year. This comprises a dividend of 9.54 cents for 2007 and 0.52 of a cent for the period from the listing date to Dec 31 this year.

To be fair, the segment which includes renewable energy financing is a potential money spinner, given the boom in the energy sector. And Bab**** & Brown's projected payout also serves as an assurance somewhat. But it is also clear that the fund has no comparable on the local bourse that can be used as a performance benchmark, and complex products like CDOs are very new to most retail investors here. This means that these investors may not fully understand the risks of buying into the fund.

Take the example of CDO - a pool of underlying debt obligations, which has its risk redistributed across investors via tranches. Yes, most of us know that there is default risk that comes from the underlying pool. But what complicates the picture in a CDO is that the default of one party may result, to different degrees, in the default of other parties in the portfolio. As such, the performance of the individual tranches depends largely on the degree of correlation of the defaults that may occur in the underlying portfolio.

The instrument also faces legal risk as legal and documentary issues are factors in ensuring the efficiency of risk transfer and of clearly defining the role of the different parties involved in a CDO structure. Third party risk is also present in a CDO, as the inability of a third party to meet its obligations could jeopardise the viability of a transaction. In the case of cash-flow CDOs, this takes the form of counterparty risk vis-a-vis the counterparties of interest rate or foreign exchange swaps, or providers of external credit enhancers.

So in assessing the risk-return trade-offs for this one asset class alone, investors already need to carry out a substantial amount of research, which may not be easily available. As such, a 9 per cent yield may come with risks that retail investors are not able to measure easily.

Business outlook-wise, Bab**** & Brown is optimistic about prospects in aircraft operating leasing, citing factors such as the growing proportion of global commercial fleet subject to leases, from 26.3 per cent in 1986 to 50.7 per cent in June this year. To be sure, aircraft values and lease rates have shown continued improvement since the trough of 2002-2003, and lease rates on in-production long-range wide bodies and certain narrow-body aircraft, posted double-digit growth over the past year.

However, one should also note that high fuel-related costs, geopolitical risks and health-related threats such as Sars or avian flu will continue to affect the outlook for the sector. Plus, most of its assets are parked in North America, Europe and Australia, and local investors may not be able to make informed judgments about the market conditions in those countries. This is especially critical as any downturn in the US will directly affect the returns and default risks of the portfolio. A look at its portfolio also reveals that its assets are often inaccessible to most retail investors, which may not be a bad thing since investors now have more investment options. But as these investments are relatively illiquid, this also heightens the liquidity risk when it comes to disposal of assets. Investors would do well to look further into these issues before calling their brokers.



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KK


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IPO Prospectus here

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BT, Published December 13, 2006

Babco ck & Brown fund offers 9% dividend yield

BABcoc k & Brown Structured Finance Fund, which has registered its prospectus, is offering a 9 per cent dividend yield next year, with potential for further upside. The fund yesterday announced an IPO of 323.46 million shares at a price of $1.06 each. The public offer, which opens today, comprises 6.47 million public offer shares and 316.99 million placement shares. Trading is slated to begin on Dec 20, after the offer closes on Monday next week.

Yesterday, Babcoc k & Brown said investors can expect to receive total payout of 10.06 cents per share by the end of next year. This comprises a dividend of 9.54 cents for 2007 - a 9 per cent yield - plus an additional 0.52 cents for the period from listing date to Dec 31 this year.

The fund said its dividend policy is to pay out the majority of economic income from its investments, after payment of provision for its operating and financing expenses.

Its initial portfolio of assets and economic exposures will be acquired at a cost of $397.7 million, of which 32.1 per cent will be accounted for by operating lease assets, which include aircraft lease-related assets and a rail operating lease asset. Alternative assets like renewable energy financing assets take up 34 per cent, while loan portfolio and securitised assets account for the rest.

It adopts a three-pronged strategy of acquisitions, active portfolio management, as well as financing and risk management to achieve its investment objectives.

The fund will be managed by Babcoc k & Brown Group, which has some A$29.3 billion (S$35.5 billion) of funds under management as at June 30, 2006. The group currently manages seven entities listed on the Australian Stock Exchange, and one on the London Stock Exchange.

In the operating lease sector, Babcoc k & Brown Group managed a portfolio of about 190 leased commercial jets as at June 30, with a value in excess of US$4.9 billion, and 15,500 freight railcars as at Sept 30 in North America. Through a joint venture, the company also manages rolling stock in Europe, currently valued at about 256 million euros (S$521 million).

Over the past 13 years, the group said it has financed real estate, infrastructure, aircraft, rolling stock and financial assets by securitising cash flows with efficient capital structure, and completed a collateralised debt obligation of asset-backed securities early this year.

In the energy sector, it manages a diversified company investing in renewable fuels listed on the ASX Ltd, which is the owner and developer of ethanol production facilities in North America and Australia.



-- Edited by KK at 20:57, 2006-12-13

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