Keybridge Capital Limited

Media Releases

Half Yearly Results
20 February 2013

Operating profit of $1.6 million for the six month period
Net loss (after impairments) of $2.5 million
28 February 2013 debt repayment milestone met before due date
Net tangible assets equal to 25.2 cents per share
Sale of significant aviation assets progressing as anticipated
New Executive Director announced

Keybridge Capital reported a net operating profit of $1.6 million for the half year to 31 December 2012. The positive operating result was however negatively impacted by a gross provision of $4.1 million against the Company's aviation investments; offset by a $0.5 million gain on the Company's shipping investments. This resulted in a net loss for the six month period of $2.5 million.

The provision was taken due to the deterioration of the particular circumstances surrounding the non- recourse asset-based financing of, and a committed new lease on, one of our four aircraft assets. These circumstances resulted in Keybridge being required to consent to the sale of this asset in a challenging market. This sale completed on 15 February 2013, with loan repayment proceeds of USD2.4 million received by Keybridge today.

These somewhat 'forced sale' circumstances however do not apply to the Company's remaining aviation loan interests managed by GMT, as these aircraft remain on lease to a quality operator until December 2018, and, which assets, as previously advised, are now subject to a non-binding Letter of Intent ("LOI") for the sale by the owner at book value. The purchaser of these aircraft has also recently confirmed that formal board approval to acquire these assets on the terms contained in the LOI has now been sought and recommended by the group's investment committee. Completion is subject to finalising and executing all relevant binding documentation and conditions precedent for transactions of this nature. This sale is expected to deliver loan repayment proceeds to Keybridge of approximately USD30 million by the end of March 2013.

A breakdown of the result is provided in Attachment 1. Currency amounts in this announcement are denominated in Australian Dollars, unless otherwise specified.

During the past half year, $9.8 million of investment realisations were achieved at no less than book value. The majority of this capital inflow has been used to reduce the Company's borrowings.

The Managing Director of Keybridge, Mark Worrall, said: "The Company has been working towards selling two of its most significant assets over the past six months. The first of these sales successfully completed a few days ago and has resulted in loan repayment proceeds to Keybridge of approximately USD2.4 million. Assuming the sale of the Company's other remaining significant aviation interests are concluded on the terms as we presently expect, this will allow Keybridge to repay its debt facility in full. This resultant debt-free position will in turn allow the Company the liberty to make decisions about its future, be it to continue an orderly wind down process or to determine a new investment strategy for Keybridge."


As at 31 December 2012, the written down value of the Company's investments by asset class was as follows:

% of total
Private equity

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

Balance Sheet The following is a simplified balance sheet for the Company as at 31 December 2012:

Cash-on-hand & Other Assets
Shareholders' Funds

This level of shareholders' funds equates to net tangible assets of 25.2 cents per share.

As at 31 December 2012, approximately 67% of the Company's total assets were denominated in US Dollars and approximately 9.1% was denominated in Euros. The balance is in Australian Dollars. The terms of Keybridge's present debt facility do not allow the Company to hedge these foreign currency assets. The Company has partially mitigated this situation by denominating its corporate borrowings in US Dollars; however the Company is still long in US Dollars and Euros.

Because there is this 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. For example, over the past six month period, the Australian Dollar appreciated in value against the US Dollar but depreciated against the Euro, leading to a small overall net decrease in value to the Company. As at 31 December 2012, exchange rates were: AUD1.00 = USD1.03845 and EUR0.78662.

The following is the net position in each currency of the Company's balance sheet as at 31 December 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 in order to repay bank debt in full, the Company will revert to a reliance on cash reserves to meet operating costs until a decision is made on the future of the Company.

To assist in cash flow management, the Company will do all that it can to continue to reduce its operating costs over the next six months, and borrowing costs will cease assuming the debt will be fully repaid by March 2013.

Corporate Debt Facility

Over the last six months, Keybridge reduced its outstanding corporate borrowings by $12.8 million in Australian dollar equivalent terms (including an unrealised gain of $0.9 million) from $38.8 million to $26.0 million at 31 December 2012. As at the date of this release, following receipt of further cash inflows, the balance of the facility is USD24.95 million. The Company has now satisfied its required payment milestone due by 28 February 2013 and has no further interim milestones to achieve, pending the maturity of its corporate debt facility on 3 June 2013.

With the repayment of the 28 February 2013 milestone, the Company will no longer be required to recognise a $0.4 million accrual for a contingent risk sharing fee to the banks. This accrual (included in the half year results) will be reversed in the second half of the financial year.

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. As discussed previously, provided the realisations of the Company's remaining significant aviation assets conclude as expected, the Company will repay the remaining USD24.95 million and will no longer be governed by these bank restrictions.

Executive Update

Further to the announcement of the resignation of the Company's Managing Director, Mark Worrall in November 2012, Keybridge advises that Nicholas Bolton, a Director of the Company since 2 January 2013, and consultant since 5 April 2012, has been appointed Executive Director effective 22 February 2013, being the date of Mark's departure. Terms agreed for Mr Bolton's remuneration is an annual salary package of $440,000 (including superannuation). There is no fixed term, nor any contracted Short Term or Long Term bonus incentives, and either party can terminate on three months' notice.

Over the past twelve months Nicholas has been working closely with Mark in the management of the Company's remaining portfolio of investments, with our clear goal to realise assets at fair value to repay (or refinance as may be best achieved), the Company's corporate debt. Nicholas will continue in his new fulltime role to assist the Company in this goal, which in turn will provide the opportunity for the Board to consider a new future for Keybridge.

Mark said: "I have been pleased to lead Keybridge as Managing Director over the past 15 months and to have been able to work with a small dedicated team to deliver on our goals to achieve a debt free Company. While I would have preferred that this aim was able to be completed before my departure, we are very close to achieving this goal, and Nicholas and the Board are highly engaged and motivated to complete the present asset sales process. Nicholas is very experienced in all of the Company's remaining assets and the details of each of the transactions, and will no doubt, in my opinion, through continuing to work closely (as we have been doing) with our relevant asset managers and the Board, deliver on these present actions in the timeline required. I sincerely wish Nicholas and the Board every success in completing this task".


Keybridge is presently operating on a cash flow positive basis, and, subject to completion of transactions currently underway, is expected to soon be debt free. This improved financial position allows the Company to consider the possibility of taking the business in a new direction, although no final decision has been taken on this matter at this time.

If the sale of the remaining aircraft investment does not conclude as expected, the Company will need to refinance the current balance sheet debt, through replacement or extension, and will also seek to restructure certain asset-based debt on those investments. The aim of any such refinancings will be to achieve more normalised terms on its corporate facility, given the significantly strengthened balance sheet, and to materially improve cash flows from the remaining investments.

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

In due course, the objective is to position Keybridge to rebuild a long-term viable and valuable business or to permit a return of capital to shareholders. Whilst the Company is focused for now on debt repayment, it continues to look for ways in which it may create a profitable and growth orientated business. Implementation of any such strategy will only be possible after further progress has been made with regards to repayment, or refinancing of the outstanding debt.

Attachment 1


6 Months To
31 Dec 2012
6 Months To
31 Dec 2011
Borrowing Costs(2)
Operating Costs
Pre Tax Operating Profit/(Loss)
Foreign Exchange(3)
Net Impairments
Income Tax(4)
Net Profit/(Loss) after Tax

All income recorded in the six months to 31 December 2012 was received as cash.


The average level of borrowings in the six months to 31 December 2012 was $30 million, compared with $83 million in the prior corresponding period. The average cost of borrowings during the past six months was 5.7% per annum compared with 4% per annum in the prior corresponding period. This increase in the average cost of borrowings reflects the increase, as of March 2012, in the margin charged by the banks increasing from 3.75% to 5.5%.


The majority of the Company's total assets are denominated in US Dollars and, to a lesser extent, in Euros. Of these foreign currency assets, approximately 71% 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 2012, the Australian Dollar appreciated against the US Dollar but depreciated against the Euro resulting in a small net loss in value of the unhedged foreign currency assets. This contrasts with the corresponding period last year where a gain occurred as a result of this exposure.


At present, distributions paid from the Republic Private Equity Fund are subject to US withholding tax (WHT). This has resulted in a tax expense for the Company of AUD0.4 million (USD0.45 million) from the sale of one of the underlying companies in the Fund in August 2012. Management has been working with our US tax advisers and current expectations are that at a minimum, we should recover the balance of the WHT as a refund in the 2013 tax year.

Attachment 2

Performance By Asset Class

Aviation (Total book value $33.4 million)

The Group's remaining aviation transactions are mezzanine loan investments in four passenger jet aircraft and an equity investment in an ASX-listed general aviation company. In the past six months, the Group received no repayments of principal from the aviation portfolio.

Our aviation asset manager on the passenger aircraft, GMT Global Republic Aviation Ltd ("GMT"), has sourced a new lessee for one of these aircraft and a non-binding LOI has been executed for the sale of this aircraft to a third party leasing company. This sale, in a challenging market, was required due to the deterioration of the particular circumstances surrounding the non-recourse asset-based financing of, and a committed new lease on this aircraft. The sale completed on Friday 15 February 2013, with loan repayment proceeds of USD2.4 million repaid to Keybridge today. As a consequence of these changed circumstances, a provision of USD4.3 million was recognised in the first six months to 31 December 12 to reflect the financial outcomes to Keybridge arising from this disposal.

For the remaining aircraft in the portfolio, GMT has now executed a non-binding Letter of Intent ("LOI") with an experienced aircraft leasing company subsidiary of a major financial institution to sell its three A330-300 aircraft, which are currently on lease to a European airline. This LOI is subject to the satisfaction of usual conditions precedent and due diligence, as well as board and investment committee approvals by both seller, seller's financiers and purchaser, with the sale is expected to be completed by no later than 29 March 2013. The completion of the sale of these three aircraft will result in loan repayment proceeds to Keybridge of approximately USD30 million.

Keybridge also holds 5.8 million shares in PTB Group Limited, a listed general aviation company.

Property (Total book value $11.9 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 the inner city of Sydney. This development has now achieved successful completion of its first two stages, with all developed properties now sold. The third stage is now under construction and has achieved all required pre-sales to meet its construction finance hurdles. Funding for Stage 4 has been approved in principle and construction is expected to commence in first quarter 2013 once documentation and required finance conditions are satisfied. This development is expected to complete late 2014, and, assuming everything proceeds as currently planned, Keybridge should receive its investment repaid, together with interest, on completion of settlement from this stage during the course of the first half of 2015.

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. The senior lender was repaid in full in January 2013. Keybridge is now the sole 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 its present carrying value, 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 income or repayments from its property loans and receivables, as all proceeds are being swept to the pool's senior lender. We have however, since balance date now received $0.5 million in principal repayments and expect a further $0.83 million in principal to be repaid at the end for February 2013.

Lending (Total book value $11.3 million)

This investment now consists of one subordinated loan to a non-conforming car leasing business based in Australia. The subordinated loan pays interest each month as contracted.

As previously advised, the owners of Keybridge's borrower have signed a non binding Heads of Agreement to sell its vehicle leasing business to a major international corporation. To facilitate completion of confirmatory due diligence and purchase documentation by the parties, Keybridge agreed loan extension terms on its mezzanine loan facility to this business which was otherwise due at 30 September 2012. The new loan term is to 28 February 2013 after the purchaser met all necessary conditions to automatically extend the loan, pending expected completion of the sale by that date.

However, the Company has now been advised that the purchaser wishes to amend the terms of its offer, which will require further negotiations and agreement between Keybridge, its borrower and the purchaser prior to 28 February 2013. If the amended terms are agreed by all parties, and if the transaction is then approved by the purchaser, the sale will not complete by the current loan maturity, and accordingly the borrower has formally sought a further term extension. The terms of, or any extension to the maturity date of this loan, are yet to be agreed.

In the past six months, the Group however, received $2.0 million of proceeds via syndication at par in July 2012 of its participation in this asset.

Infrastructure (Total book value $7 million)

The Group has one remaining infrastructure investment, being a loan to, and an equity accounted investment in, a 1 MW solar electricity facility in Spain. The plant is performing at the agreed performance levels in accordance with the original contract, following the successful replacement of the sub-standard solar panels under warranty.

However the Spanish Government has announced its intention to legislate for various changes to taxes on such facilities; though such legislation has as yet not been released. The delay in this legislation creates uncertainty for future potential buyers of the plant; therefore the Company is not actively seeking to dispose of this investment at this stage until this tax position is more certain.

Keybridge received no principal repayments over the last six months to 31 December 2012.

Private Equity (Total book value $4.5 million)

This investment is a preferred equity investment in a closed-end private equity fund based in the United States. In the past six months, the Group received a net USD6.8 million (USD7.3 million before withholding tax) repayment after the private equity fund realised its largest asset in the portfolio in August 2012. This distribution represents the effective return of all Keybridge's initial capital invested into the fund, together with our expected investment return on that capital.

The remainder of the underlying investee entities in which the fund has invested, are all tracking in line with the fund manager's expectations. Keybridge is reviewing its future structure and ownership of this investment through current negotiations with the fund manager.

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:

Nicholas Bolton
Tel: +61 2 9321 9000
Adrian Martin
Chief Financial Officer
Tel: +61 2 9321 9000