Keybridge Capital Limited

Media Releases

Half Yearly Results
10 February 2011

Loss for the half-year of $20.6 million
Major cause of loss was continued appreciation of Australian Dollar
Material reduction in net impairment charges
Net tangible assets equal to 35.5 cents per share
Interim debt repayment obligations completed
Discussions under way to extend term of debt facility

Keybridge Capital reported a loss of $20.6 million for the half year to 31 December 2010. The majority of this loss was attributable to movements in the value of the Australian Dollar. There was an underlying operating loss of $5 million

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

During the last half year, $27.3 million of investment realisations were achieved. The majority of this cashflow has been used to pay down the Company’s borrowings. Keybridge has now satisfied all the interim repayment obligations under its corporate debt facility.

The Managing Director of Keybridge, Mark Phillips, said: “We have made good progress in realising assets and repaying debt. The remaining investments, however, will be more challenging to realise in the shorter term, given that the relevant markets remain subject to liquidity constraints. Our key objective remains to repay our debt so that we can resume distributions to shareholders.”


As at 31 December 2010, the written-down value of the Company’s investments by asset class was as follows:

% of total

In the first half of the financial year, the Company incurred additional net writedowns against its investments of $3.8 million. This represents a significant reduction in the level of writedowns compared with the corresponding period last year. A major reason for the additional provisions in the most recent half year was the continuing difficult operating environment in Shipping markets.

In the half year to December 2010, the Company realised repayments from seven separate investments. The largest realisations were in the Property and Aviation asset classes, with the remainder being in Lending and, to a minor extent, Shipping.

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

Balance Sheet

A simplified balance sheet for the Company as at 31 December 2010 was as follows:

Cash & Other Assets
Shareholders' Funds

This level of shareholders’ funds equates to net tangible assets of 35.5 cents per share.

Of the Company’s assets, 81% are denominated in US Dollars with a further small amount in Euros. The US Dollar assets are hedged as to approximately 60% 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 the first half of the financial year, the Australian Dollar continued to appreciate in value. As a result, the Company incurred foreign currency losses, with the majority being unrealised.


Over the last two years, a range of the Company’s investments have stopped paying cash income to Keybridge. This has been due principally to the effects of the global financial crisis, which have required available cashflow to be used to accelerate repayment of transaction-specific senior debt.

In addition, a number of the Company’s income-producing investments have been repaid over the past 12 months. As a result of these factors, there is presently a shortfall between the Company’s cash income and its fixed commitments of bank interest and operating costs. This shortfall has been more than met by cash generated from investment realisations or by cash-on-hand. It is anticipated that this will continue to be the case over the next 12 months.

Corporate Debt Facility

The outstanding principal amount under Keybridge’s corporate debt facility as at 31 December 2010 was $110 million. In addition, there was an accruing fee owed to the banks of $3 million.

The debt facility matures in June 2011. Ahead of that date, the Company has been obliged to make interim repayments of at least $70.5 million by March 2011. Actual repayments totalling $82.8 million were achieved by 31 December 2010. Since the end of December, a further $2.8 million of repayments have been made. Thus, all current repayment obligations have been satisfied.

The Company has begun discussions with its banks to extend the maturity date of its debt facility. These discussions are progressing satisfactorily, but are yet to be finalised.

The Company undertook interest rates swaps in prior periods to lock in the bank bill and LIBOR costs of its borrowings. As at 31 December 2010, these swaps had a negative valuation of $2.1 million, reflecting the fact that they were entered into at rates well above current market. These interest rate swaps mature during the half year to June 2011.


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.

The pace of investment repayments has slowed over the past six months as a result of the Company’s remaining investments being more difficult to realise.

We have seen an improvement in conditions in aviation markets. Overall, however, secondary markets for the assets remaining in our portfolio continue to be characterised by relatively low levels of liquidity. Thus, realising Keybridge’s outstanding investments in the shorter term at acceptable prices remains challenging. Our expectation is that realisation of remaining investments will occur over a period of approximately three years.

A key objective for the Company in the current half year will be extending the term of its corporate debt. It is imperative that Keybridge achieves ongoing terms from its lenders that enable it to continue realising assets in the ordinary course. The Company is in discussions with its banks to achieve this.

In due course, our objective is to position Keybridge to rebuild a long-term business. Whilst we are focused, for now, on debt repayment, we are continuing to look for ways in which the Company may regrow its activities. Realistically, implementation of any such strategy will need to wait until our levels of debt have been substantially reduced.

Attachment 1


6 Months To
31 Dec 2010
6 Months To
31 Dec 2009
Borrowing Costs
Operating Costs
Pre Tax Operating Profit/(Loss)
Foreign Exchange(2)
Net Impairments
Income Tax(3)
Net Profit/(Loss) after Tax

Substantially all income recorded in the six months to 31 December 2010 was either received as cash in the period or is expected to be received shortly after the end of the period. This reflects a change from the corresponding period last year, when $7.8 million of accrued income was included in the accounts. The Company no longer recognises such accrued income in its profitability. Another factor contributing to the reduction in income from last year is the repayment of investments. In the corresponding period last year, $2.1 million of income was received from transactions that have since been repaid.


Of the Company’s total assets, the majority are denominated in either US Dollars or Euro. Of these foreign currency assets, over a half are hedged by US Dollar corporate borrowings. 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 six months to December 2010, the Australian Dollar appreciated against those two currencies, leading to a loss in value of the unhedged foreign currency assests. A similar outcome occurred in the corresponding period last year.


The loss from income tax in the six months to December 2009 arose because the Company wrote-off the value of its Deferred Tax Assets in that period.

Attachment 2

Performance By Asset Class

Aviation (total book value $103 million)

The Company’s aviation transactions predominantly involve preferred equity and mezzanine loan investments in passenger jet aircraft. Over the past two years, the aviation industry has been impacted by reductions in the secondary market prices of aircraft and in the availability of senior bank debt. Despite this, the Group’s aviation investments have, in the main, performed comparatively soundly. In the six months to December 2010, the Company realised approximately $9 million of repayments from its aviation investments. Since the end of December, one airline within the portfolio has experienced financial difficulties due to changes in regulations regarding its principal air routes. The issue is still being worked through but the risk of the airline defaulting has been reflected in impairment levels for the latest half year period.

Lending ($35 million)

These investments consist of senior and subordinated loans to entities in different industries. Two Lending transactions were repaid in full in the six months to December 2010, realising approximately $6 million. The remaining investments in this asset class have seen some improvement in performance over the past six months, leading to some write-back of impairments recognised in prior periods.

Shipping ($17 million)

The Group’s shipping transactions are loans and equity investments in vessels that carry wet or dry cargoes. Short-term charter rates and secondary market prices of vessels have fallen over the past couple of years. 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 the ongoing value for Keybridge from these transactions. In the six months to December 2010, the Company realised just under $1 million from its shipping investments. All the charter parties in the Group’s investments continue to meet their payment obligations on time. Despite this, as a result of continuing difficult conditions in shipping markets, the Company, in the latest period, has recognised further impairments against its investments in this asset class.

Infrastructure ($7 million)

The Group has one remaining infrastructure investment, being an equity investment in a solar electricity facility in Spain. The secondary market prices for infrastructure investments have fallen over the past two years. This has been exacerbated by a decision by the Spanish Government in December 2010 to alter legislation to reduce the income able to be earned by solar facilities in Spain.

Property ($4 million)

The Group’s property investments consist mainly of mezzanine loans secured by development projects and completed commercial properties in eastern Australia. These investments have become impaired, due principally to the slowdown in sales activity and the fall in prices in these locations. In the past six months, the Group realised approximately $12 million from its investments in this sector.

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

For further information, please contact:

Mark Phillips
Managing Director
Tel: +61 2 9321 9000