BAM: Problems Plaguing 'The Next Berkshire'

Includes: BAM, BPO, BRP, RWR, VNQ
by: Judy Weil

Brookfield Homes (BHS) has been hit like all homebuilders. Brookfield Asset Management, the holding company that Barron's has hailed as the next Berkshire Hathaway (NYSE:BRK.A), has BHS's back. But in a somewhat complicated manner as seen from BHS's conference call.

BAM has a lot on its mind these days. From Brookfield Homes Corp.'s Q408 conference call: (BHS)

[In] 2009, the company plans to further strengthen its balance sheet with the previously announced $250 million proposed rights offering to its common stockholders of up to 10 million shares of 8% convertible preferred stock. The proceeds from the rights offering will be used for general corporate purposes including repayment on a credit facility at Brookfield Asset Management (NYSE:BAM).

Q: Looks like on the one hand you’re starting to pay down the debt on the project specific financings; on the other hand you’re borrowing from Brookfield Asset Management.

A: On the surface it appears that to your point, I think property debt moved by $212 and BAM by $225 so it would appear on the surface that they offset each other. But during the year, we consolidated two joint ventures and the numbers on that were the assets would have went up by about $66, cash went down by $6 and then debt went up by $60. And so that debt payment would have come equal from our operating cash flows up $67. So I just wanted to point out for debt and in fact on a cash basis would have went down by around that $60 million.

Q: As it pertains to the right offering, it sounds like you guys are counting on that money to come in… What happens if you don’t get enough people that participate at the $250 level? …Do you guys have a back-up plan in case, you know, it doesn’t fully go through or whatever like how you’re going to reduce debt?

A: [In] the press release… Brookfield Asset Management indicates its intention to exercise in full its subscription rights, as well as any oversubscription rights to which it might be entitled.

Q: So you mean they’re going to complete anything that’s not done by other investors?

A: Yes, that’s what they have indicated so far.

Q: If none of the other shareholders actually went,[has] BAM indicated that they would just take the entire $250 million?

A: Yes, [and] they indicated they would over-subscribe as well.


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