Keybridge Capital Limited

Media Releases

2012 Full Year Audited Results
14 August 2012

Net profit after tax for the six months to 30 June 2012 of $1 million compared with a loss for the first six months of $4.2 million
Net loss after tax and after impairment provisions for full year of $3.2 million - down from a loss of $30.4 million in 2011
Debt to equity ratio at 65% as at today's date - down from over 200% at 30 June 2011 and 85% at 30 June 2012
Net tangible assets maintained at 26 cents per share
Operational costs have reduced from $4.5 million in 2011 to $2.8 million for 2012

Keybridge Capital reported an audited net profit after tax for the six months to 30 June 2012 of $1.0 million and a full year net loss after tax of $3.2 million. In the year to 30 June 2011, the Group incurred a loss after tax and impairments of $30.4 million.

A detailed breakdown of the result is provided in Attachment 1. Note that all amounts in this release are denominated in Australian Dollars, unless otherwise specified.

The impairment in asset values for the full year reflected the continuing poor state of the global shipping markets, and a decision to provision one of the Company's aviation loans. Further information on all asset classes remaining within the Keybridge portfolio are set out in Attachment 2 and in the Annual Report released today.

The markets in which the Group has invested remained challenged during the 2012 financial year (particularly shipping). The Group was, however, able to realise some significant repayments in the first half of the financial year which in turn enabled the Group to reduce the balance of its corporate debt facility from $99.7 million as at 30 June 2011 to $38.8 million as at 30 June 2012. Post balance date, further cash receipts from investment realisations and transaction distributions, as announced on 3 August 2012, has reduced this debt to approximately $29.9 million (USD30.5 million). These distributions delivered USD6 million and $2 million to Keybridge.

During the 2012 financial year, Keybridge realised $64.2 million from its investments. With the Company not making new investments, virtually all of this cash flow was used to pay down corporate borrowings. The Group has more than satisfied to date all required corporate debt repayment obligations in line with its funding arrangements. Further, the Directors expect that the debt repayment obligations required to be made by 31 December 2012 will be achieved either through investment realisations or a refinancing of the Company's residual debt by that date.


As at 30 June 2012, the written-down value of the Company's investments by asset class was as follows:

Private Equity

Refer Attachment 2 for details of each asset class.

Balance Sheet

The following is a simplified balance sheet for the Company as at 30 June 2012:

Cash-on-Hand & Other Assets
Shareholders’ Funds

With 172.1 million shares on issue, this level of shareholders' funds equates to net tangible assets of approximately 26 cents per share.

As at year end, approximately 65% of the Company's total assets were denominated in US Dollars and Euros. The terms of Keybridge's debt facility do not allow access to forward contracts to hedge these foreign currency assets. The Company has materially mitigated this situation by denominating its corporate borrowings in US Dollars thereby creating a 'natural' hedge of asset and liabilities. By year end, approximately 70% of these foreign currency assets were hedged by corporate borrowings in the same currency.

The following is the net position in each currency of the Company's balance sheet as at 30 June 2012:

US Dollars
Australian Dollars

Cash Flow

Management of cash continues to be a key focus. With cash investment income forecast to reduce in line with realisations of income generating assets (as may be required to meet bank milestones, unless refinanced in the interim), the Company will likely revert to a reliance on the realisations of investments to meet operating costs and bank interest commitments.

To assist in cash flow management, the Company has reduced its operating costs by $1.7 million from $4.5 million in 2011 to $2.8 million in 2012 and lowered borrowing costs by $8.3 million over the last twelve months. It is forecast that operating costs for 2013 will be reduced further as a result of lower staff numbers and reduced accommodation costs (by moving to a smaller office space). We also expect to see reductions in some of our expenses arising from the Group's improving financial position.

Corporate Debt Facility

Over the course of the year, Keybridge reduced its outstanding corporate borrowings by $61 million from $99.7 million to $38.8 million at 30 June 2012. As at the date of this release, following receipt of the cash inflows from realisations announced on 3 August 2012, the balance of the facility is USD30.5 million.

The Company's current lending facility however continues to require Keybridge to sweep all spare cash to the banks. This prevents the making of new investments and the payment of dividends to shareholders. Keybridge is now actively looking at avenues to refinance this residual debt so as to eliminate the present constraints and allow the Company flexibility to consider its future.


As has been the case for the past three years, Keybridge is not able to make new investments. As required by the terms of our banking facility, our priority has been and remains the continuing orderly realisation of existing investments to repay our debt facility. The Group however, is for the first time, close to achieving this goal and has managed, thanks to the support of its banks and asset managers, to deliver material reductions in this debt, whilst still retaining as much value for shareholders as possible.

Keybridge is presently cash flow positive and, for the first time since June 2008, has more equity than debt. This improved financial position allows the Company to consider the possibility of taking the business in a new direction.

We remain subject to a debt milestone of corporate debt being no greater than USD25 million by 31 December 2012. As our debt now stands at USD30.5 million, we are confident that this milestone will be achieved on or before its due date. The Company is also in active dialogue with several investors and financiers to seek to refinance not only our residual corporate debt, but also certain key underlying assets in which Keybridge has invested.


Attachment 1



6 Months To
30 Jun '12
$ millions

6 Months To
31 Dec '11
$ millions
Full Year
$ millions
Full Year
$ millions
Operating Expenses
Borrowing Costs2
Pre Tax Operating Profit
Foreign Exchange3
Net Impairments
Income Tax4
Net Loss After Tax



Investment and interest income was slightly higher in 2012 than in 2011 as a result of improvements in a number of the Company's underlying investments. This has allowed Keybridge to recommence recognising income on certain assets, whereas in previous years the probability that these investments would deliver income was considered to be too low.


The average level of borrowings in 2012 was $63 million, compared with $116 million in 2011. Borrowing costs were 75% lower in 2012 compared with the prior year. This reflected both a lower level of borrowings and lower interest costs. The average interest rate paid on borrowings during the 2012 financial year was 4.4% per annum, compared with 9.6% per annum in the prior year. This decrease in the average interest rate was largely caused by the expiry of some expensive interest rate swaps.


The majority of Keybridge's assets are denominated in US Dollars and, to a smaller extent, Euros. The terms of Keybridge's debt facility do not allow access to forward contracts to hedge these foreign currency assets. However a natural hedge exists due to the substantial matching of US Dollar assets with US Dollar liabilities. For the unhedged component of its 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 12 months to June 2012, the Australian Dollar depreciated by approximately 5.2% against the US Dollar and appreciated 9.0% against the Euro. This led to a small gain in the value of the Group's unhedged foreign currency assets.


The Group continues to not yet recognise its deferred tax benefits as an asset due to the uncertainty of being able to utilise the benefits over time. Any movement in deferred tax benefits is recognised directly in the profit and loss and not on the balance sheet.

Attachment 2

Performance By Asset Classs


Total book value $38 million.

The Group's largest asset class is aviation. Keybridge's remaining primary aviation transactions are mezzanine loan investments in four Airbus A330-300 passenger jet aircraft managed by our aviation partner Global Republic Aviation Ltd ("GMT"). We also own 5.8 million shares in a small ASX-listed general aviation and engine leasing company, PTB Group Limited, valued at approximately $1.3 million. Three of the Airbus aircraft are leased to a major European airline through to December 2018 and the fourth is leased to another European airline through to November 2012. All leases have performed as contracted.

The average age of these four aircraft is now approximately 18 years old. The markets in which these older aircraft assets participate have remained challenged in the past twelve months, with aircraft valuations declining faster than assumed useful life depreciation and new deliveries being offered by suppliers and lessors at very competitive prices. The aviation industry continues to be impacted by:

(i) reduced airline profitability;
(ii) lower secondary market prices of older aircraft;
(iii) high availability of new aircraft and significant financing support for these new deliveries by
export credit agencies; and
(iv) restricted availability of senior bank debt to finance anything other than new or near new

Keybridge continues to look at all avenues to either achieve realisations of these assets at what we believe are fair values, particularly having regard to the sound, long term leases attached to three of these four aircraft and the contracted cash flows that are expected to continue (as they have in the past) to be derived by Keybridge from these investments. We are also working to restructure the underlying specific aircraft financing arrangements to seek to unlock additional value to Keybridge from the application of transaction cash flows in a more efficient manner.

The Group realised USD49.1 million in repayments from the Group's total aviation portfolio in the past twelve months, after our largest asset in the portfolio was sold in October 2011, and we sold down a minority participation in our mezzanine loan to the remaining portfolio to GMT in May 2012.

Of our remaining aviation assets, the lessee of one of these aircraft has formally advised GMT that they will not be renewing the lease at the end of its term in November 2012. GMT has been actively remarketing this aircraft for re-lease to another airline, or outright sale. This remarketing process is ongoing. Given the state of the aviation market and aviation fuel prices, particularly for older aged aircraft, no new lease has at this date yet been sourced for this aircraft.

Under the term of the asset's senior loan, if the aircraft is not re-leased within six months of its lease termination (i.e. by May 2013), the aircraft may need to be sold to repay the senior loan. If this eventuates, based on appraised current market values for this aircraft, the sale of the aircraft may not recover 100% of Keybridge's mezzanine loan. This has required the Company to recognise a provision for USD5.1 million for the year ended 30 June 2012.


Total book value $13 million.

This investment now consists of one remaining asset a subordinated loan to a non-conforming car leasing and lending business based in Queensland. This loan pays interest each month as contracted. The maturity date on this loan is 30 September 2012, and Keybridge is in detailed discussions with the borrower with regard to repayment or renegotiation of the terms of this facility. Post balance date, Keybridge syndicated a portion of this loan ($2 million) to another lender.

Over the past twelve months, Keybridge received $15.5 million of repayments/realisations from its lending transactions, with the material realisation (arising from the sale of underlying securities in China following borrower default) achieving an outcome of USD14.7 million, a gain over book value of USD2.2 million. The additional amount of $0.8 million was derived from repayments of principal from the motor vehicle leasing transaction.


Total book value $12 million

Keybridge has two remaining property-backed investments. The first investment is a subordinated secured loan to the project developer of a multi-staged residential development in Zetland, Sydney. This development has now achieved successful completion of its first two stages, with virtually 100% of all developed properties now sold. The third stage is now under construction, and has achieved all pre-sales to meet its construction finance requirements. Funding for Stage 4 is presently being sought with construction expected to commence later this year. If construction funding is achieved as expected for Stage 4, Keybridge should, unless the borrower repays the loan before 31 December 2012, receive its investment repaid, together with interest, on completion of the development (scheduled for end of 2014). If funding is not achieved, Keybridge can require the DA approved project to be sold, with our loan expected to be repaid later this year via the sale of the project.

The other remaining property investment is a subordinated loan secured by a pool of Australian commercial mortgages. The pool continues to be reduced via the refinancing of the underlying loans as they either mature or the underlying securities are realised, with the senior lender to the pool being repaid first. All the loans in the pool are first ranking. Keybridge expects that the senior lender will be repaid in full by December 2012, whereupon Keybridge will become the senior lender to the remaining portfolio, thereby deriving interest income and future realisations as loans are refinanced and/or realised. It may take a further one to two years for Keybridge to be repaid in full, however the collateral value of the mortgage pool is presently sound and Keybridge is undertaking various strategies to accelerate this asset's early realisation. In the past twelve months, Keybridge did not receive any cash income or repayments from its property loans and receivables, as all proceeds are being swept to the pool's senior lender.

Private Equity

Total book value $12 million.

This investment is a preferred equity investment in a closed-end private equity fund based in the United States. It was previously categorised as part of our 'Lending' asset class. However given its improving performance, it is appropriate to comment on this asset separately. Keybridge is an investment partner in a fund managed by Republic Financial Corporation of Denver, Colorado ("RFC"). (Republic is the parent company of GMT, Keybridge's partner and lease manager of its aviation assets). The PE Fund has invested in five underlying investee companies - all US-domiciled, privately owned manufacturing businesses. RFC is also an investment partner in this Fund.

While the PE investment did not pay any cash distributions to Keybridge during 2012, it has in the past and due to an improving outlook for the US economy, the underlying investee entities in which the fund has invested are all showing signs of improvement. It is due to this improving position and the valuation of the underlying investee companies that Keybridge has written up its carrying value on this investment from USD7.2 million to USD12 million. This write up, derived by recognising income accrual on this investment, is more than adequately supported by the independent valuation of the underlying investee entities, which is further supported by the fact that post balance date, as advised to the market on 3 August 2012, Keybridge has now received a tax paid cash distribution of USD6.0 million from the Fund. This distribution in pre tax terms returned in full the Company's original capital investment in this Fund.

This distribution was achieved following the sale of one of the five underlying investee companies at a sale price equivalent to its inherent valuation in the PE Fund.

While Keybridge expects the Fund to continue to improve, it may take several years for the investments to be realised through active management of the businesses in which the Fund has invested.


Total book value $7 million

The Group's one remaining infrastructure investment is a loan to, and an equity accounted investment in, a group of companies that own, in aggregate, a 1 MW solar electricity facility in Spain. This facility was initially commissioned in late 2008 in compliance with the provisions of specific 2007 Spanish federal legislation, which entitled these plants to a long term (25 year), attractive feed-in tariff ("FIT") from government backed electricity wholesalers.

The Company has advised previously that there have been some production issues at this plant since its commissioning as a result of sub-standard solar panels having been installed during the construction process in 2008. After over two years of negotiations with the head contractors of this project, 500kws of these sub-standard panels (supplied by a subcontractor to the project's head contractor) have now been replaced under warranty, and a further 300kws of panels have been identified as requiring replacement (also under warranty). The replacements, along with an additional 80kws of power installed by the head contractor in 2010, now deliver more than acceptable production from the plant in accordance with the original contract.

However the Spanish Government introduced further legislation in December 2010 to place a cap on the production able to receive the originally 2007 legislated FIT. This cap remains in place at its present level until 31 December 2013, whereupon it is due to step up to a level almost equal to the expected productive output from the plant. Given the capping arrangements, Keybridge and the head contractor have agreed, as part of a settlement agreement signed on 28 June 2012 relating to past performance issues, to a timeline to have the final required panels installed by December 2013 in readiness for maximum productive output when the FIT is legislated to return to its uncapped regime from 1 January 2014. There remains however some serious concerns that the Spanish Government's present austerity pressures will further affect the renewable energy sector and therefore impact the revenue from the Company's solar facility. This may then have a possible negative flow on effect to the net income from this asset and/or the sale value able to be achieved in a sceptical buyer's market for Spanish assets. Keybridge has previously provisioned this asset.

In the twelve months to June 2012, the Group received no principal repayments from the solar project, but received income as budgeted.


Total book value $0.53 million

Shipping continues to be a volatile and challenged asset class across the globe. Many shipping companies and financiers regard 2012 to be the nadir of the industry as the continuing steady decline in charter rates and asset values during the course 2012 has led to many bankruptcies, forced asset sales and an increase in vessels sold for scrap.

Keybridge had invested in six vessels of differing size, class and age. Two of the largest and oldest ships ("OBOs") (previously impaired in 2009 and 2010) have now been sold for scrap, resulting in the senior lender suffering a material loss on its loan and Keybridge crystallising its previous 100% impairment. We also now assign no value to the remaining four vessels in which we hold mezzanine loans (managed by our partner and co-investor Tufton Oceanic Limited of London, UK ("Tufton")). This is due to the independent market value of the ships on expiry of the current charters being at or below the then expected outstanding balance on each of the respective vessel's senior debt, i.e. there would be no money available after repaying the senior lender to repay the Company's investment if the vessel is sold at projected market values. This has necessitated the Company recognising a further provision of USD2.6 million for the year ended 30 June 2012, being the remaining balance of the shipping portfolio, in addition to its previous impairment of $6.5 million at 31 December 2011. The remaining book value relates in part to a loan receivable of USD0.34 million to one of the Tufton vessels. This loan was provided as interim working capital to facilitate a restructure of the operating arrangements of the vessel and we expect to recover this loan over the next few months. The balance is a fee of $0.23 million due at year end from the sale of the two OBOs concluded in July 2012. This fee has now been received.

The Company maintains a regular dialogue with Tufton, with our mutual aim to seek to recover some future value from these vessels should markets improve. Any realisation of value is however also very dependent on the patience of the asset's respective senior lender to also ride out the poor current market conditions.

In the twelve months to June 2012, the Group received $0.7 million of repayments from its shipping transactions, recognised a nil profit on the equity accounted investments and recognised impairments of $9.1 million.

For further information, please contact:

Mark Worrall
Managing Director
Tel: +61 2 9321 9000