Keybridge Capital Limited

Media Releases

2010 Results
10 August 2010

Overall loss $49.9 million, with an operating profit offset by unrealised writedowns
Net tangible assets equal to 46 cents per share
Bank debt repayments ahead of schedule

Keybridge Capital reported a loss of $49.9 million for the year to 30 June 2010. An operating profit of $7 million was offset by asset writedowns, a reduction in the value of deferred tax assets and foreign currency translation losses.

The loss in the second half of the year was $10.7 million, significantly reduced from the loss in the first half of $39.2 million.

A breakdown of the full year result is provided in Attachment 1.

During the year, $67 million of investment realisations were achieved. With the Company not making new investments, the bulk of this cashflow has been used to pay down the Company's corporate borrowings. Keybridge is currently ahead of the repayment schedule required under its corporate debt facility.

The Managing Director of Keybridge, Mark Phillips, said: "Whilst conditions remain challenging in our investment markets, we have made reasonable progress in achieving investment repayments and reducing our borrowings. Our key objective remains to repay our debt so that we can resume distributions to shareholders."


As at 30 June 2010, the written-down value of the Company’s investments by asset class was as follows:


In the second half of the financial year, the Company took additional net writedowns against its investments of $15 million. These provisions arose because of the continuing difficult operating environment for some of the Company's investments, most notably in Shipping.

Whilst conditions in the Company's largest asset class of Aviation have remained soft during the 2010 financial year, there are now signs of improvement with passenger and freight traffic increasing. This provides a more confident outlook for this asset class, although there still needs to be an increase in the availability of senior debt in the sector.

Since June 2009, Keybridge has realised repayments from twelve separate investments. The largest realisations were in the Infrastructure asset class, with the remainder being spread across Lending, Property and Aviation. Only one, small realisation was achieved in the Shipping asset class.

Over the past 18 months, a range of the Company's investments have stopped paying cash income to Keybridge. This has been due to a variety of factors emanating from the global financial crisis, including the need within some transactions for cashflow to be directed to repaying non-recourse senior debt.

Attachment 2 includes a summary of the performance of the Company's investments by asset class.

Balance Sheet

Cash-on-Hand & Other Assets
Shareholders’ Funds

This level of shareholders' funds equates to net tangible assets of 46 cents per share.

Of the Company's assets, 79% are denominated in US Dollars with a further 5% in Euros. The US Dollar assets are hedged as to approximately two-thirds by borrowings also in US Dollars. Because there is an unhedged component of foreign currency assets, Keybridge's profitability and shareholders' funds will vary with changes in the value of the Australian Dollar against the US Dollar and, to a lesser extent, the Euro. In 2010, the Australian Dollar appreciated in value. As a result, the Company incurred foreign currency losses, with the majority being unrealised.

The following is the net currency position of the Company's balance sheet as at 30 June 2010:

US Dollars
Australian Dollars

At 30 June 2009, Keybridge held an intangible asset in the form of a Deferred Tax Asset (DTA). With market conditions, and the Company's future profitability, being uncertain, it was decided during the first half of the 2010 financial year to write-down this DTA by $15 million, reducing its value to zero.

For the same reasons, the Company has not recognised in its accounts any new tax credits in 2010, despite incurring a large accounting loss.

Corporate Debt Facility

Keybridge had $154 million of outstanding corporate borrowings as at 30 June 2010. This figure includes $5 million of unrealised revaluation losses on interest rate swaps undertaken in prior periods to lock-in the bank bill and LIBOR costs of the Company's debt. These interest rate swaps mature in the first half of 2011.

The debt facility matures in June 2011. Ahead of that time, the Company has to meet a schedule of repayment obligations. Repayments totalling $64 million were achieved by 30 June 2010. This satisfied the repayment schedule through to 31 December 2010. By March 2011, a further $6.5 million of repayments have to be made and the Company is confident of achieving this requirement.

It is likely that full repayment of the Company's debt facility will take approximately a further two to three years to achieve.


For the time being, the Company is not making new investments. Its priority is to achieve realisations of investments to repay its debt facility. It is only after outstanding borrowings have been reduced significantly that a resumption of distributions to shareholders can be contemplated.

Keybridge's strategies are to keep operating costs as low as practicable, bring forward investment realisations where possible and, for those transactions where this is not practicable, to preserve as much value for the Company and its shareholders as possible.

This last point is particularly relevant for the Company's aviation and shipping investments. In these asset classes, significant realisations are impractical in current market conditions.

A key objective for the Company in the next 6 to 12 months will be the refinancing of its corporate debt. It is imperative that Keybridge achieves ongoing terms from its lenders that enables the Company to continue realising its assets in the ordinary course.

Attachment 1


Borrowing Costs2
Operating Costs
Pre Tax Operating Profit
Foreign Exchange3
Net Impairment
Income Tax4
Net Profit After Tax


The majority of investments are now not paying cash income to Keybridge. The average return on investments in 2010 was approximately 10% per annum, compared with 14% per annum in 2009.


The average level of borrowings in 2010 was $177 million, compared with $210 million in 2009. The average cost of borrowings in both years was just under 9% per annum.


In 2009, Keybridge closed-out its remaining foreign exchange hedging contracts. Of the Company's total assets, the majority are denominated in either US Dollars or Euro. Of these foreign currency assets, in excess of 60% are hedged by corporate borrowings in the same currency. For the remaining, unhedged component of foreign currency assets, Keybridge's profitability is subject to variability from changes in the value of the Australian Dollar against the US Dollar and Euro. Over the course of 2010, the Australian Dollar appreciated against those two currencies, leading to a loss in value of the unhedged foreign currency assets.


In the first half of the 2010 financial year, the Company wrote-off the value of its Deferred Tax Assets, leading to this negative income tax outcome.

Attachment 2

Performance By Asset Classs


The Company's remaining aviation transactions are preferred equity or mezzanine loan investments in passenger jet aircraft. There are four outstanding investments, underpinned by 54 individual aircraft leased to 26 international airlines for an average remaining period of 3.5 years.

The aviation industry has been impacted by reduced airline profitability, falls in the secondary market prices of aircraft and a reduced availability of senior bank debt. The airlines leasing the aircraft in Keybridge's investments have performed soundly, with lease payment obligations generally being met on time.

The outlook for aviation is improving, with passenger and freight traffic increasing, and there are signs that improvements in aircraft markets may occur over the next couple of years.

In 2010, the Company negotiated a $10 million repayment of one of its investments in this asset class. Liquidity and prices in aircraft markets, however, are yet to improve sufficiently for the Company to have a realistic opportunity of realising its remaining aviation investments.


These investments consist of five senior and subordinated loans to entities in a variety of industries. Three of these loans are up-to-date with their interest payments. The other three transactions have stopped paying interest. The Company has received $15 million of repayments in this asset class over the past year and anticipates further repayments in 2011.


Keybridge's shipping transactions are equity investments in cargo-carrying vessels. There are three outstanding investments, underpinned by six vessels chartered to three shipping companies for an average remaining period of 2.5 years.

Short-term charter rates and secondary market prices of vessels have fallen materially over the past 12 to 18 months. The shipping transactions in the Company's portfolio have senior debt facilities with loan-to-valuation covenants that have already been, or may in the future be, breached. Thus, the continuing support of the non-recourse senior lenders is important for Keybridge to protect its carrying values. All the charterparties in Keybridge's portfolio continue to meet their payment obligations on time.

In 2010, the Company realised just over $1 million from its shipping investments. Markets will need to strengthen before Keybridge will be able to realise its remaining investments.


Keybridge has five outstanding property investments that consist of mezzanine loans secured by development projects in eastern Australia and the United States. These investments have become impaired due principally to a slowdown in sales activity and the fall in prices in residential markets in these locations. Whilst conditions in the property markets have shown signs of improvement, sales and prices are yet to improve significantly.

Keybridge realised $14 million from its property investments in 2010 and further realisations are anticipated in 2011.


The Company has one remaining infrastructure investment, being an equity investment in a solar electricity facility in Spain. The secondary market prices for renewable investments have fallen due to a reduction in the number of buyers and an increase in the required return that is being sought. Over the past 12 months, the Company has realised $27 million from four other infrastructure investments.

Keybridge Capital is a financial services company that has invested in, or lent to, transactions which predominantly are in the core asset classes of property, aviation, shipping and infrastructure.

For further information, please contact:

Mark Phillips
Managing Director
Tel: +61 2 9321 9000