All aboard the ABC Learning creditors' committee
February 2, 2010
Dear Mayne Reporters,
The great shareholder activism adventure took a new turn in Brisbane today when your correspondent made it onto the ABC Learning creditors' committee along with representatives from the Federal Government, the senior banking syndicate owed $955 million, the Commonwealth Bank chasing its $445 million in unsecured notes, Morgan Stanley, long-time ABC Learning adviser Austock, the LHMU, Challenger Financial Group, former 15% shareholder Lazard and various other parties all seeking recovery from the great Eddie Groves scandal of 2008.
The forever colourful Eddie mate Donald Jones from job placement outfit 123 Careers initially got himself on the 15-person committee but then pulled out after the meeting claiming it was too big and would be a shemozzle. Natasha Bita said this about the former Army heavy in her story in The Australian this morning:
In the affidavit, Mr Cronin (from McGrath-Nichol) recounts how Mr Jones called him from the gym on November 8 and told him about a plane hijacking in which terrorists threatened to throw a body off the plane every hour until their demands were met.
"So I will be throwing three dead bodies every day at the feet of Julia Gillard until my demands are met," Mr Jones allegedly said. "She is going to be really upset."
Given Don Jones, who sat at the meeting with sunglasses on his head, has also been threatening to close down 15 centres that he has developed for ABC Learning but not yet handed over, it's probably a relief that he won't be sitting on the creditors' committee.
More dodgy related party Eddie Groves deals
The Courier Mail's Liam Walsh has led from the front on colourful ABC Learning material for the past couple of years and today's installment was an absolute ripper when he revealed that ABC Learning had lent $5 million to a company associated with the former boss of Brisbane's Treasury Casino who, it turns out, has joint investments with Eddie Groves in property at the Whistler ski resort in Canada.
The former Tabcorp employee involved, Mr Howard Dreitzer, also happened to be involved in Eddie's failed Brisbane Bullets bastketball franchise as a major sponsor. This saga just gets more amazing by the day and it's easy to forget it's meant to be about providing child care services to families.
Writs and threats flying everywhere
Morgan Stanley might have bought 60% of ABC Learning's US business a few months ago but it is clearly not happy about investing $71 million directly into ABC Learning earlier year because adminstrator Greg Maloney told the meeting it had reserved its right to sue for misleading and deceptive conduct, although its representative from Clayton Utz was very coy after the meeting.
Even Eddie's long-time house broker Austock has put its hand up for $3.2 million in fees it hasn't been paid for advising on the US deal and with Eddie's estranged wife Le Neve now suing him for $40 million, the lawyers will probably be the only winners when the dust has settled.
Talk and run from receiver Chris Honey
Whilst the directors appointed the administrators, it is the banking syndicate which came over the top appointing the receivers McGrathNicol and Chris Honey fronted up today to give a very cursory five minute talk before sprinting straight out the back without taking questions.
However, Honey did hang around for another 90 minutes to then take questions at a press conference. At least the administrator took questions and you can here our two major contributions as follows:
Knocking off the bank charges and administrator's conflicts of interest
Give us the true state of the books
Gillard revelation exacerbates ABC problems
Receiver Chris Honey is is clearly struggling to keep the show running because he launched an appeal for everyone to stop speculating about the business so that parents would enroll their kids for next year and give more certainty to the business.
With the benefit of hindsight, deputy prime minister Julia Gillard made a major strategic error revealing that 400 of ABC Learning's 1040 Australian centres are losing money. This was the equivalent of screaming fire in a crowded theatre as parents are now leaving in droves, fearing that their centre is one of the losers and will therefore be closed.
And while Julia Gillard has been calling for expressions of interest, Chris Honey today said no asset sale program was being pursued as they first simply tried to stabilise the business and fix up the appalling records maintained by Eddie and his white shoe brigade mates.
I asked the administrator to give us some insight into the occupancy figures because with the Feds coughing up $22 million for two months of operations and the banking syndicate producing another $30 million, does this mean the cash burn is $50 million over two months or the equivalent of $300 million a year? Mr Maloney declined to answer and was also non-committal when John Walker, the managing director of litigation funder IMF, asked how soon we would see the draft audited accounts that Ernst & Young has been wrestling with for months.
How the debt breaks down
ABC Learning has the dubious honour of being at the top of this list measuring the claimed net assets of listed Australian companies at the time of their collapse. The $2.23 billion is clearly all gone, with the debate now shifting to what happens to the $1.666 billion in liabilities that was laid out as follows at the meeting today:
Senior debt facility: $955m
Employee entitlements excluding redundancy pay: $31m
Unsecured creditors: $80m
Unsecured notes: $600m
Donald Jones reckons he is owed $250 million, but there was no sign of it in the official presentation today and none of these figures include contingent liabilities, especially from the offshore operations. It would be fascinating to know the full financial and personal association between Jones and Eddie Groves.
Will the administrator knock over the bank charge?
The administrator has received an initial $300,000 of funding from the receiver to conduct an investigation into the affairs of the company whilst the receiver runs the business.
I asked the administrator whether he was going hell for leather on our behalf to knock off the bank security which was only orally registered on June 25, formally documented on July 27 and then backed up with another $180 million charge related to the Commonwealth Bank on October 27.
This appears to be the big push that IMF is pursuing and it was interesting that John Walker nominated Leigh Hall from Lazard to the creditors committee. Lazard was one of the big three shareholders who held about 15% of ABC Learning. The other two were Morgan Stanley, which has flagged its own litigation, and the Singapore Government which was nowhere to be seen today.
The whole relationship between banks, shareholders, receivers and administrators will become extremely fraught over the coming months. For instance, I asked Mr Maloney whether his firm Ferrier Hodgson was really in a position to try and knock off the bank charge when it relies on big banks for most of its work, including the receivership gig at Allco Finance Group.
He denied any conflicts and said he would simply do the job he was given by the directors on behalf of creditors.
Media and meeting procedure
The meeting lasted for about 90 minutes and Mr Maloney took some good questions from the LHMU, which prodded on issues such as employee entitlements and banks charges. One staffer and union member declared that parents were "leaving in droves", so the anxiety for ABC's 16,000 Australian staff is clearly taking its toll.
Most of the big financial players didn't reveal themselves at the meeting until it came to nominations for the creditors' committee and the various bankers and lawyers weren't at all interested in engaging much after the meeting, especially with the media.
Whilst some of the media appeared to get locked out, Colin Kruger from The SMH, Natasha Bita from The Australian and Liam Walsh from The Courier Mail all got into the meeting which could have accommodated 300 people at the Gianni's function hall on the swank southside riverfront development. Unfortunately, only about 100 people turned up.
ABC radio's PM program was clearly there, based on this report which included our assessment the unsecured creditors will get nothing.
Despite the financial and human pain all round, there were no fireworks at all with some mate of Michael West's called Donald McDonald getting closest to some spirited engagement when he asked a rapidfire series of questions.
How the creditors committee was formed
I got into the meeting with two voting forms, the first as a contingent creditor for $1 as a shareholder courtesy of the Sons of Gwalia decision and the second courtesy of a proxy for an employee arranged by the LHMU.
The court originally ordered the creditors' committee be limited to 10, but by the time we got to 15 names, Mr Maloney called a halt to nominations. It was then resolved to initially constitute the committee by way of chronological nominations, but to then seek leave from the court to add the extra 5. I was the 10th to scrape in on the first round but all 15 gathered for a very brief pep talk from Mr Maloney afterwards which didn't really involve any new information.
There will obviously be confidentiality deeds to be signed but the committee will probably only meet by way of conference call and the second creditors meeting slated for December will now probably be deferred until next March.
What happens next?
The biggest issues going forward will involve stabilising the business, resolving this question around the bank charges and also potentially disclosing the true state of the books, so creditors can get a picture of what could be salvaged from the mess.
Based on little more than speculation in an information vacuum, I reckon the unsecured noteholders will lose the lot, but the banks will get more than $700 million back if the charge holds up.
The vast majority of the staff should be okay, along with their leave entitlements, but there's unlikely to be any redundancy payouts for those that are let go.
In terms of selling the business, I reckon the receiver will probably walk away from a minority of the Australian centres, certainly less than 20%, and then try and encourage greater enrollments at nearby centres to maximise the sale value. But the big challenge will probably revolve around the logistics of selling so many childcare business, when the majority of the buildings are not even owned by ABC Learning.
It might even turn out that greater value is recovered from the residual US, UK and New Zealand businesses which will be much cleaner to sell than the spaghetti junction Australian structure dreamt up by Eddie in which ABC Learning was little more than a virtual head contractor.
The plane is about to board, so that's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
The great shareholder activism adventure took a new turn in Brisbane today when your correspondent made it onto the ABC Learning creditors' committee along with representatives from the Federal Government, the senior banking syndicate owed $955 million, the Commonwealth Bank chasing its $445 million in unsecured notes, Morgan Stanley, long-time ABC Learning adviser Austock, the LHMU, Challenger Financial Group, former 15% shareholder Lazard and various other parties all seeking recovery from the great Eddie Groves scandal of 2008.
The forever colourful Eddie mate Donald Jones from job placement outfit 123 Careers initially got himself on the 15-person committee but then pulled out after the meeting claiming it was too big and would be a shemozzle. Natasha Bita said this about the former Army heavy in her story in The Australian this morning:
In the affidavit, Mr Cronin (from McGrath-Nichol) recounts how Mr Jones called him from the gym on November 8 and told him about a plane hijacking in which terrorists threatened to throw a body off the plane every hour until their demands were met.
"So I will be throwing three dead bodies every day at the feet of Julia Gillard until my demands are met," Mr Jones allegedly said. "She is going to be really upset."
Given Don Jones, who sat at the meeting with sunglasses on his head, has also been threatening to close down 15 centres that he has developed for ABC Learning but not yet handed over, it's probably a relief that he won't be sitting on the creditors' committee.
More dodgy related party Eddie Groves deals
The Courier Mail's Liam Walsh has led from the front on colourful ABC Learning material for the past couple of years and today's installment was an absolute ripper when he revealed that ABC Learning had lent $5 million to a company associated with the former boss of Brisbane's Treasury Casino who, it turns out, has joint investments with Eddie Groves in property at the Whistler ski resort in Canada.
The former Tabcorp employee involved, Mr Howard Dreitzer, also happened to be involved in Eddie's failed Brisbane Bullets bastketball franchise as a major sponsor. This saga just gets more amazing by the day and it's easy to forget it's meant to be about providing child care services to families.
Writs and threats flying everywhere
Morgan Stanley might have bought 60% of ABC Learning's US business a few months ago but it is clearly not happy about investing $71 million directly into ABC Learning earlier year because adminstrator Greg Maloney told the meeting it had reserved its right to sue for misleading and deceptive conduct, although its representative from Clayton Utz was very coy after the meeting.
Even Eddie's long-time house broker Austock has put its hand up for $3.2 million in fees it hasn't been paid for advising on the US deal and with Eddie's estranged wife Le Neve now suing him for $40 million, the lawyers will probably be the only winners when the dust has settled.
Talk and run from receiver Chris Honey
Whilst the directors appointed the administrators, it is the banking syndicate which came over the top appointing the receivers McGrathNicol and Chris Honey fronted up today to give a very cursory five minute talk before sprinting straight out the back without taking questions.
However, Honey did hang around for another 90 minutes to then take questions at a press conference. At least the administrator took questions and you can here our two major contributions as follows:
Knocking off the bank charges and administrator's conflicts of interest
Give us the true state of the books
Gillard revelation exacerbates ABC problems
Receiver Chris Honey is is clearly struggling to keep the show running because he launched an appeal for everyone to stop speculating about the business so that parents would enroll their kids for next year and give more certainty to the business.
With the benefit of hindsight, deputy prime minister Julia Gillard made a major strategic error revealing that 400 of ABC Learning's 1040 Australian centres are losing money. This was the equivalent of screaming fire in a crowded theatre as parents are now leaving in droves, fearing that their centre is one of the losers and will therefore be closed.
And while Julia Gillard has been calling for expressions of interest, Chris Honey today said no asset sale program was being pursued as they first simply tried to stabilise the business and fix up the appalling records maintained by Eddie and his white shoe brigade mates.
I asked the administrator to give us some insight into the occupancy figures because with the Feds coughing up $22 million for two months of operations and the banking syndicate producing another $30 million, does this mean the cash burn is $50 million over two months or the equivalent of $300 million a year? Mr Maloney declined to answer and was also non-committal when John Walker, the managing director of litigation funder IMF, asked how soon we would see the draft audited accounts that Ernst & Young has been wrestling with for months.
How the debt breaks down
ABC Learning has the dubious honour of being at the top of this list measuring the claimed net assets of listed Australian companies at the time of their collapse. The $2.23 billion is clearly all gone, with the debate now shifting to what happens to the $1.666 billion in liabilities that was laid out as follows at the meeting today:
Senior debt facility: $955m
Employee entitlements excluding redundancy pay: $31m
Unsecured creditors: $80m
Unsecured notes: $600m
Donald Jones reckons he is owed $250 million, but there was no sign of it in the official presentation today and none of these figures include contingent liabilities, especially from the offshore operations. It would be fascinating to know the full financial and personal association between Jones and Eddie Groves.
Will the administrator knock over the bank charge?
The administrator has received an initial $300,000 of funding from the receiver to conduct an investigation into the affairs of the company whilst the receiver runs the business.
I asked the administrator whether he was going hell for leather on our behalf to knock off the bank security which was only orally registered on June 25, formally documented on July 27 and then backed up with another $180 million charge related to the Commonwealth Bank on October 27.
This appears to be the big push that IMF is pursuing and it was interesting that John Walker nominated Leigh Hall from Lazard to the creditors committee. Lazard was one of the big three shareholders who held about 15% of ABC Learning. The other two were Morgan Stanley, which has flagged its own litigation, and the Singapore Government which was nowhere to be seen today.
The whole relationship between banks, shareholders, receivers and administrators will become extremely fraught over the coming months. For instance, I asked Mr Maloney whether his firm Ferrier Hodgson was really in a position to try and knock off the bank charge when it relies on big banks for most of its work, including the receivership gig at Allco Finance Group.
He denied any conflicts and said he would simply do the job he was given by the directors on behalf of creditors.
Media and meeting procedure
The meeting lasted for about 90 minutes and Mr Maloney took some good questions from the LHMU, which prodded on issues such as employee entitlements and banks charges. One staffer and union member declared that parents were "leaving in droves", so the anxiety for ABC's 16,000 Australian staff is clearly taking its toll.
Most of the big financial players didn't reveal themselves at the meeting until it came to nominations for the creditors' committee and the various bankers and lawyers weren't at all interested in engaging much after the meeting, especially with the media.
Whilst some of the media appeared to get locked out, Colin Kruger from The SMH, Natasha Bita from The Australian and Liam Walsh from The Courier Mail all got into the meeting which could have accommodated 300 people at the Gianni's function hall on the swank southside riverfront development. Unfortunately, only about 100 people turned up.
ABC radio's PM program was clearly there, based on this report which included our assessment the unsecured creditors will get nothing.
Despite the financial and human pain all round, there were no fireworks at all with some mate of Michael West's called Donald McDonald getting closest to some spirited engagement when he asked a rapidfire series of questions.
How the creditors committee was formed
I got into the meeting with two voting forms, the first as a contingent creditor for $1 as a shareholder courtesy of the Sons of Gwalia decision and the second courtesy of a proxy for an employee arranged by the LHMU.
The court originally ordered the creditors' committee be limited to 10, but by the time we got to 15 names, Mr Maloney called a halt to nominations. It was then resolved to initially constitute the committee by way of chronological nominations, but to then seek leave from the court to add the extra 5. I was the 10th to scrape in on the first round but all 15 gathered for a very brief pep talk from Mr Maloney afterwards which didn't really involve any new information.
There will obviously be confidentiality deeds to be signed but the committee will probably only meet by way of conference call and the second creditors meeting slated for December will now probably be deferred until next March.
What happens next?
The biggest issues going forward will involve stabilising the business, resolving this question around the bank charges and also potentially disclosing the true state of the books, so creditors can get a picture of what could be salvaged from the mess.
Based on little more than speculation in an information vacuum, I reckon the unsecured noteholders will lose the lot, but the banks will get more than $700 million back if the charge holds up.
The vast majority of the staff should be okay, along with their leave entitlements, but there's unlikely to be any redundancy payouts for those that are let go.
In terms of selling the business, I reckon the receiver will probably walk away from a minority of the Australian centres, certainly less than 20%, and then try and encourage greater enrollments at nearby centres to maximise the sale value. But the big challenge will probably revolve around the logistics of selling so many childcare business, when the majority of the buildings are not even owned by ABC Learning.
It might even turn out that greater value is recovered from the residual US, UK and New Zealand businesses which will be much cleaner to sell than the spaghetti junction Australian structure dreamt up by Eddie in which ABC Learning was little more than a virtual head contractor.
The plane is about to board, so that's all for now.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.