Nick Bolton Speaks

Nobody's White Knight

It was interesting while it lasted, but a man tends to look after his own interests first and Nick Bolton seems to fit the identikit of a classic corporate operator. Here's an article in the SMH.

"I took a commercial approach to this before buying in," he said.

"I saw an opportunity to improve the position of unit holders through our entry in the company and the actions we were planning to undertake. It was a commercial transaction, intended for commercial gain, for unit holders and for myself."

By his own admission, he was "playing a game" from the start, and the result was to extract a benefit from the carcass of BrisConnections.

"To the extent there was an altruistic outcome it was unintended, in that my interests were aligned with the interests of all other unit holders," he said. "But there was always a commercial intention on our part. We didn't seek the tag of white knight, and it doesn't fit."

Does he now fear his name, and his reputation, have taken a battering?

"To the mass market, yes. One needs to take an informed or educated decision as to whether or not that's right or wrong. To those at home it has definitely affected my credibility, but in other circles I am fine."

Throughout his court case with BrisConnections, counsel for the toll road builder tried to untangle the language used by Bolton to describe his intentions.It is no different trying to get Bolton to answer if, ethically, he can justify taking money for his vote.

'"To take money for something that would be of prejudice to others I think might raise questions," he said. "This wasn't one of those cases. I consider commercial prudency to be the number one motivator here. My personal ethics go to operating a business by the rules. If there are opportunities out there and they require exploitation of the rules, I don't think that's unethical. It comes down to interpretation, I guess, but I certainly think I have conducted things very ethically."

Interesting dude, but not nearly as interesting as the active shareholder people mistook him to be.  It's certainly made blogging the BrisConnections saga a lot less interesting. I'll tell you that much.

BrisConnections Disconnect

Nick Bolton Sells Out

It turns out that Nick Bolton sold out of his position in BrisConnections to the Leightons Group for the sum of $4.5m.

The rebel shareholder who pushed for a meeting of unitholders that had been expected to jeopardise the nation's biggest infrastructure project has done an about-face - and netted himself $4.5 million in the process.

Nicholas Bolton's company Australian Style Investments sold 77 million shares in BrisConnections, the builder of the $4.8 billion Brisbane airport toll road, to Theiss-John Holland.

Theiss-John Holland is a subsidiary of Leighton Holdings, the company that won the contract to build the road.

Mr Bolton was engaged in a court battle against BrisConnections. He had pushed for a meeting of unit holders that had been expected to commence wind-up proceedings today.

But he did a complete about-face, selling the shares and voting against the resolutions he had earlier pushed for - and he did not attend the meeting in person.

BrisConnections chairman Trevor Rowe told an angry meeting of unit holders that Australian Style Investments had voted against all seven resolutions when its proxies were received on Saturday.

Mr Bolton's surprise move makes it virtually impossible for retail investors to pass any resolutions that would wind up BrisConnections or its trusts.

So that goes to show his motion to wind up BrisConnections was nothing but a play to make somebody shake some money out of the tree for him. Good for Mr. Bolton, but he leaves a lot of disappointed people in his wake. Naturally, the required 75% vote for the resolution did not happen, which means all those mum-and-dad investors are stuck with the $1-per-unit obligation at the end of this month.

I imagine Mr. Bolton might have to watch his back for the rest of his life, but he now has $4.5million to keep him safe. You can't blame a guy for selling out at the right moment.  I'm not sure it's the kind of bargain most people would have made - but the $94m bill probably looked scary, and he himself probably didn't believe there would be the 75% to back his challenge. The bummer now is that things got a lot less interesting on the unit-holders' challenge front.

I've been speaking to people in the know and they they think the maths underlying the prospectus itself is incredibly dodgy, and that ASIC (for once) might wade in to see if Mac Bank really had done their due diligence by ASIC in launching such a troubled product on the market. If their forecast on the traffic is just as wrong as all the other toll road forecasts that have preceded it, then there might be a reason for ASIC to look into this thing more seriously. I mean, does anybody remember Sydney's own Cross City Tunnel fiasco?

The ABC News is also reporting that Deustche Bank and Mac Bank are not exactly seeing eye to eye on the matter of underwriting, so we'll see where all this is going to go, even without Nick Bolton's amazing challenge. So much for that.

Today's BrisConnection News

BrisConnections Underwriters Seek Payment Deal

Ever since this circus started making headlines, I've been blogging this thing for fun.  I have to confess I have no stake in any of this, except more amusement, which must make me a terrible rubbernecker in the world of high finance train-wrecks.

Here's the latest on the news vine.

BrisConnections, the Queensland toll-road builder that has tumbled 99.9% since its initial public offering in July, has requested its shares be halted from trading ahead of a potential approach to unit holders.

The company has received "material information from one of its underwriters regarding a possible approach", it said today in a statement.

Macquarie Group and Deutsche Bank are its underwriters.

Elizabeth Knight has this entry in the SMH.

Here is how the sides are lining up. Macquarie Bank is involved in almost every facet of this project; most importantly, it is a major lender. Its bridging loan will be repaid from the proceeds of the instalment receipts due from shareholders.

Deutsche Bank and Macquarie Bank have underwritten the instalment receipts, so if investors can't pay the money they owe (the first instalment is due later this week), then these two underwriters will need to make good on the shortfall.

Deutsche Bank would rather see BrisConnections wound up, because it could then avoid having to pay the shortfall on the instalment receipts.

Macquarie is happy enough to honour the underwriting agreement, because the larger institutional shareholders will be able to stump up the additional $2 liability attached to their shares and they will share any shortfall with Deutsche Bank. So on this deal the two underwriters are pitted against each other.

The third party in this is the Queensland Government. From a political perspective, it wants this project to be completed because it needs a new road from Brisbane Airport to the city, and it wants to employ local voters to build it.

It also has financial skin to lose as this project is a joint partnership, using taxpayer money.

On the other hand, the last thing the Premier, Anna Bligh, wants to deal with is lots of local shareholders being faced with debt collectors on their doorstep asking for money.

It was fortunate for Bligh that she went to the polls before this disaster blew up in her Government's face.

Nicholas Bolton may have been the catalyst for bringing this disaster into the public arena, but since this project began it has been an accident waiting to happen.

It's a classic highly-geared structure that should probably never have made it into the listed public arena.

The debt crisis that changed the feasibility of leveraged projects like this had already begun when it was listed on the Australian Stock Exchange. Getting equity funding from small shareholders who were then obliged to pay a call for further instalments was irresponsible. ASIC should have been looking at this at its conception, not its implosion.

There was no room in this project for excessive debt or rubbery forecasts for revenue and traffic use. But these are issues now coming into question.

It's funny how it's only now that the the foundations of the deal has been exposed as largely wanting that the public sphere has woken up to just how dodgy these public infrastructure deals put together by the Macquarie Bank actually are.

There are plenty of other tollways and motorways that Macquarie Bank has been shoving through development with these kinds of deals so there should be a greater lesson in it for governments. Of course the governments a re silent because it means they have to go back to the horrible prospect of actually doing these infrastructure developments from scratch by themselves, and weigh up the real needs of the population rather than throw up tollways every which way.Mac Bank shouldn't have been allowed to run loose with this stuff to begin with.

Of course the deafening silence you from the government is actually that because doing the right thing by the electorate and being accountable and making sense in how to spend public monies is hard work. Privatising deals and ripping off mom&dad retail investors, is capitalism in action and makes perfect sense, but BrisConnections shows it is an utter crock of a notion.

The 'Read'em Their Rights' Rule

It now falls incumbent upon Stockbrokers to warn investors about partially paid listed securities as a fall out of all this BrisConnetions mess. So even with an understanding that anything in the market must be caveat emptor, the ASX wants brokers to warn the small-timers.

The ASX said brokers will now be required to obtain from retail clients a signed agreement saying they are aware they have a responsibility to obtain and read a copy of a prospectus, product disclosure statement or information memorandum produced by the product issuer.

The rule will apply when small investors enter transactions to buy a partly paid security for the first time and take effect from May 1.

Client agreement rules of this kind already exist for complex products such as options, futures and warrants.

The Australian Securities and Investments Commission said the new rule for party paid securities is aimed at improving disclosure for retail investors, ensuring they are aware of potential liabilities when making such investments.

"ASIC and ASX have been in direct contact with several market participants to ensure that they have contacted their clients with current orders to buy partly paid Securities,and communicated their potential obligations,'' ASIC said in a statement.

The change to the ASX market rules was approved by federal superannuation and corporate law minister Senator Nick Sherry today.

"The government shares the concerns of ASIC and the ASX that retail investors have not fully understood their potential obligations with regard to partly paid securities,'' Senator Sherry said in a statement.

"A falling share market this year has meant that some securities that looked like a bargain actually had huge liabilities attached to them that were not understood by retail investors who purchased them.''

There are five partly paid securities listed on ASX that will be subject to the new rule.

I wonder how they'll make this work with internet share trading and the such.

More Interesting News For Business Types

The American Economy As Basketcase

A couple of weeks ago, I did point out that oligarchies do have their merits in stabilising systems. They're uncompetitive, and perhaps even anti-competitive, but a stable economy seems to be built on oligarchic sharing of market segments, rather than a genuine free for all. Part of this might be because there simply aren't enough smart people around to run a lot of tiny corporations, and in turn, there is possibly a natural pooling of talent in more stable environments which means the oligarchies tend to come out of the same social soil as the idiots who might be running these companies. With that in mind, check out this link from Pleiades.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.

Oh dear. And Wall Street really ran with it, didn't they now? The net result is the plum-pudding of financial doom we're all being collateralised into. Who came up with this lousy plan?

It's another rivetting read if you're into why this Global Financial Crisis is so f*cked, begat in f*ckedness, and delivered from and unto f*ckednss by the f*cked.

Macquarie Bank Buys Into Brisconnetions

A couple of weeks ago, we looked at Brisconnections and its amazing collapsing unit prices, the $2-per-unit that had to be paid, and how one Nick Bolton who bought into these shares as penny-dreadfuls looking for a quick buck, has now moved to wind up the trust.

This week we find Macquarie Bank has waded into this mess by buying the trust units in order to forestall the windup motion.

What started as a circus sideshow has now turned into a serious headache for the investment bank, which is attempting to protect its $325 million exposure and a future fee stream.

Macquarie was a key member in the BrisConnections consortium that won the 45-year concession to build, operate and finance the 6.7-kilometre Airport link toll road in Brisbane.

But now the bank that turned infrastructure financing into a global franchise faces having one of its bread-and-butter tollroad projects derailed in a street fight with a 26-year-old internet entrepreneur.

Macquarie's 8.1 per cent stake in BrisConnections, picked up for spare change, is aimed at thwarting Nicholas Bolton's attempt at winding-up the toll road operator. This move had been looming as the escape plan for Bolton and thousands of retail shareholders who are holding onto toxic securities that have hundreds of millions of dollars worth of debt attached.

In rosier days BrisConnections represented a fee pot for Macquarie and a clutch of investment banks linked to last year's $1.2-billion sharemarket float.

Macquarie secured a financial advisory fee of $56.1 million, a sponsor development fee of $12.5 million, and an equity underwriting fee of $28.2 million. It also stood to gain a dividend reinvestment plan underwriting fee of $14 million.

Deutsche Bank shared its equity underwriting exposure to Macquarie, and Credit Suisse and JPMorgan each had a small windfall in the underwriting fee.

Macquarie also stood to gain through an agreement that secured it as an exclusive financial adviser to BrisConnections for a decade.

Among all this is Deutsche, which is a not so disinterested bystander in proceedings. With Macquarie, Deutsche is the co-underwriter of the $390 million due to be paid on April 29. The two have a further $390 million underwriting obligation that is due again next year.

Unless there is a miraculous change in appetite for start-up infrastructure assets, the underwriters are likely to be left with the bulk of the shortfall, given the unrealistic prospect that retail shareholders will be in a position to pay for this.

Naturally, Deutsche Bank would rather not pay that sum of money just because Mac Bank floated the damn thing in a way that -pardon the pun - would sink rather than float. All very funny, and I do hope this Nick Bolton fella wins. The Mac Bank model of 'infrastructure business' is so reprehensible, they deserve this stuff to happen to them and probably more.

UPDATE: Of course  the news of the day (02-Apr-'09) is that Bolton wins the first round in court. BrisConnections can't stop him from calling  the unit holders' meeting to wind down the trust.

Rebel shareholder Nicholas Bolton has won his court battle with Brisbane toll-road builder BrisConnections.

Two planned meetings of unitholders will now go ahead, as scheduled, later this month.

The decision puts in jeopardy the future of Brisbane's $4.8 billion Airport Link toll road, the biggest infrastructure project under way in Australia. The company's unit holders will vote on a series of resolutions to have BrisConnections wound up at those meetings.

BrisConnections was seeking orders in the Victorian Supreme Court to have Bolton's company, Australian Style Investments, wound up on the grounds it was insolvent and would not be able to pay a $77 million instalment owed to BrisConnections.

BrisConnections was also seeking orders to have two meetings of unitholders - called by Mr Bolton, ASI's 26-year-old major shareholder - to be cancelled. BrisConnections told the court the meetings had been improperly called.

Justice Ross Robson found in favour of Mr Bolton and said the meetings could go ahead. "BrisConnections' objections to the meetings are not valid objections,'' he said.

The decision means that BrisConnections' small shareholders, who control somewhere between 70% and 75% of the company's stapled units, will be able to meet and vote on having the company wound up.

Whether that eventuates remains in doubt, as a special resolution to wind-up the trusts requires a 75 per cent vote.

Stay tuned. This is one interesting circus.

Interesting Times For Business Types

BrisConnections Is A Misnomer

A Bris as you know, is the circumcision for little Jewish boys, and connection is, well, the opposite of cutting. Thanks or not to its oxymoronic/self-defeating name, BrisConnections finds itself in weird times. They issued shares in July, which promptly went and tanked. By November, the shares were less than 10c, and at some point they were trading at 0.1c. Enter a bunch of net traders who thought, look, how low can it go beyond 1/10th of a cent? They're still building the damn road and it is underwritten.

Thus the theory would have it that the more you bought, a killing was there to be made. There was one catch: the trust units were issued with an obligation to pay $1.00 per unit this year and then another $1.00 next year. This meant that unit holders like Nick Bolton who bought 47million of the units were up for 95million or thereabouts in obligations over the next 18months.

Bolton had just become the company's biggest shareholder and, thanks to brokers at Westpac, armed himself with 47 million part-paid BrisConnections units worth 0.1¢ each, and picked up $94 million of associated liabilities.

Bolton choked back tears as he spoke. "I have no comment to make at this stage, but I will talk at a later date," he said, before telling us that he bought the shares in an on-market transaction, and had not spoken with anyone at BrisConnections.

For months, BrisConnections company secretary Tamira Herbst tried to contact Bolton about his shareholding and staggering $94 million debt.

Goldman Sachs JBWere was engaged by BrisConnections to try to find an institutional buyer for his stake.

Emails and letters were sent to Bolton. Phone calls were made. A couple of people even braved the rather downcast looking labrador Bolton had posted at his front door in St Kilda, in an effort to speak with him.

All to no avail — he ducked the calls and the messages.

"If you speak with him again, please tell him to get in touch," said BrisConnections' key PR adviser, Mark Gold, in November. Herbst put in the same request.

Even BrisConnections chairman Trevor Rowe was stunned when Bolton, now the self-proclaimed champion of the BrisConnections underdog, finally took his call last week.

"I did speak with that fellow late on Friday afternoon to endeavour to understand what he was proceeding to do," Rowe said. "I was surprised he took the call, given our past efforts to get through to him."

At last, the face of young Nick, in all his morning-haired glory, has been revealed, and he is starting to look very much like the Corey Worthington of the business world.

Instead of hosting a rowdy house party, Bolton has instead gatecrashed the BrisConnections boardroom by calling an extraordinary general meeting to try to have its trusts wound up.

Understandably, this move by Bolton brought chuckles and derision from all quarters of the business world. Anna Bligh's Queenslan Labor government has to build the damn thing. There are others like Nick Bolton who are trapped with these 'obligations'. It seems to me part of the problem is that BrisConnections floated trust units that had $2.00 liabilities attached, so no matter what the price of the units, it was going to be minus $2.00 of its value at any point in time until the obligations phase were paid up. So, in floating trusts at $1.00 per unit, saddled with -$2.00, they effectively put a minus $1.00 units on the market.

No wonder the value dropped like a brick the day they were issued and rightfully so. I'd immediately short something like that if I knew it was coming down the pike. I'm sure the financial engineer types who put together the trusts would argue my minus-1-dollar-value-issue by telling me what I haven't factored in, but basically if you go by ROI, like most penny-ante day-traders do, it just doesn't matter.It's a 1-2=-1 equation from the get go. So people can line up and say how stupid Nick Bolton and his ilk were in buying these units; it goes without saying the people who originally devised them were just as dumb.

Now, what happens from here is the interesting bit. It's clear the penny-ante day-traders left holding these units can't afford these payments. Nick Bolton's ploy to wind up the trusts will probably fail, but what happens if:

1. These guys all unite, then


2. They send in an activist as a board director to raise hell, and,


3. They flat out fight it out in court to get out of paying?

BrisConnections could spend years in court trying to squeeze the 780 million out of people who simply "don't got them"; and these people still might declare bankruptcies to get out of paying. What would they do then? Is there a possible upside to any of this for BrisConnections or Macquarie?

You can see the headache. This is delicious. Here's some more from the SMH:

Bolton's move to wind-up the company was announced to the market this morning, after documents were lodged on Thursday, and have met with an angry response from the company's board.

BrisConnections chairman Trevor Rowe described the move to call a meeting to vote on winding up the trusts as ''a misguided and ineffective attempt to avoid its future obligations to BrisConnections''.

In order to have Brisconnections' trusts wound-up, Bolton will need 75% of the vote.

According to Rowe, unitholders will still be liable to pay the two further $1 instalments, even if Bolton is successful at the EGM.

''BrisConnections is very concerned that unit holders may misunderstand the impact of a winding up on the liability of unit holders,'' Rowe said.

''Winding up the trusts will not remove the obligation on unit holders to pay the outstanding amounts on their units including the next $1 instalment that will be called on 2 March, 2009. Regardless of the outcome of the meeting, unit holders will remain liable.

''Clearly, this proposal is not in the best interests of all unit holders and will be vigorously opposed by BrisConnections directors. In the event of the winding up proceeding BrisConnections would have no alternative but to cease trading which would leave unit holders in the position of still needing to contribute additional amounts into an entity which can never generate income.

''The consequences of winding up BrisConnections would result in complete destruction of future unit holder value,'' Mr Rowe stated.

Mr. Rowe would say that - it's in his interest. But if the unit-holders unite, they could make a LOT of trouble for  Mr. Rowe. This is going to take a lot of delicate negotiating to get Nick Bolton and people who are in a similar position to get them out of their unit-holder position - in other words, buy them out of their fingertraps. Or they might try and bully them all the way, but something tells me that you can't bully people who have their backs to the wall. They fight like hell. So, uh, good luck with that BrisConnections. :)

Heck, I'm tempted to buy 500 units at a total of $0.50 myself to get ringside seats for $1000 - which I might not have to pay if Nick Bolton's side wins.