Increasing debt, due soon, problem for BAM's growth?
Hi everyone,
I posted this message on the yahoo board after I read through tons of posts by a user regarding BAM.
The bottom line is: Lots of BAM's debt is coming due soon and even with the low interest rates, they had to take worse terms in previous refinancings. My message was this, any comments welcome:
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Hi Ben,
I really appreciate your input and hard work you put in your deep analysis. Thank you for that!
To be honest, most of your findings are either too complex for me or would take too much time to verify myself. Your points make sense, a lot of debt coming due, higher cost of debt, complicated corporate structure and so on.
Well, it was clear that BAM would suffer with their amount of leverage in these stormy times. Only a few companies have come out stronger than before. For me, it all comes down to the simple question, whether or not they will be able to grow their business in the future or not. One could argue that now with the low interest rates, the restructuring of debt could 'easily' be achievable, but who knows. The support from institutional investors is still huge, as can be seen in their recent funds they collected. On the one hand, I see what Brookfield says, growing op. Cashflow, stable long term-assets, on the other hand I see your findings, e.g. the comparison you put together.
So, to bring my basic question back up: Do you think that in spite of the problems that BAM is facing, it cant grow more or the actual stock price is too high?
Thank you very much in advance
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2nd message:
I remembered an older debt-refinancing of Brookfield Power, which rang my alarm bells for the first time back then:
>sell an aggregate C$300 million of Series 6 notes due November 30, 2016. The notes will bear interest at a rate of 6.132% per annum, payable semi-annually. <<
>>Net proceeds will be used to repay the remaining C$280 million of the Company’s 4.65% Series 1 notes due December 16, 2009 and for general corporate purposes<<
Even with the low interest rates, the new financing had worse terms than the previous (+1,5%). So you should be right, that the debt coming due could pose a problem. Probably only a minor one as there will surely be some big institutional holders to bail them out but one that could impact future earnings and growth nonetheless.
As my position in Brookfield was meant to be a stable fundament, I might switch to Fairfax Financial, which has weathered the crisis very well and seems valued fairly. I also own Markel, both share impressive long-term growth.
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