Brookfield Infrastructure Partners LP (BIP) 2009 Q1 法說會逐字稿

Hello, this is the conference call operator. Welcome to the Brookfield Infrastructure Partners conference call and webcast to discuss the Company's first-quarter 2009 results.

As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

At this time, I would like to turn the conference over to Tracy Wise, Vice President of Investor Relations. Please go ahead.

Thank you operator and good morning. Thank you all for joining us for Brookfield Infrastructure Partners first-quarter 2009 earnings conference call.

On the call today is Chief Executive Officer, Sam Pollock, will discuss our first-quarter operating performance and provide comments on the current market environment. We also have John Steinbock, our Chief Financial Officer, who will review our financial results.

Following their remarks, we look forward to taking your questions and comments. At this time, I would like to remind you that in responding to questions and in talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements.

These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I would encourage you to review our annual report on Form 20-F which is available on our website. With that, I would like to turn the call over to Sam Pollock. Sam?

Thank you Tracy. Good morning and thank you everyone for joining us on the call today. In the first quarter of 2009, market conditions were very challenging from an operational and financial perspective.

Recessions in North America and abroad dampened demand for our timber products and negatively affected our quarterly financial results. Adjusted net operating income or ANOI Brookfield Infrastructure totaled $8.8 million for the quarter compared to ANOI of $18.9 million in the first quarter of 2008.

In addition to depressed timber markets, ANOI in the first quarter of 2009 reflects significantly lower dividends from TBE, our Brazilian transmission investment, which are paid on a periodic basis. Despite the challenges in our timber business, we believe the value of Brookfield Infrastructure remains intact as we own premier assets that will grow in value over the long term and are well capitalized to weather these difficult times.

Now I would like to review the market environment and our operations in more detail, starting with our timber business. Brookfield Infrastructure's timber operations continue to be impacted by the softness in demand for forest products.

In response to these conditions, we reduced our harvest levels by 20% versus the fourth quarter of 2008 and continued to focus on harvesting export quality logs. In North America, we experienced significant declines in prices for secondary Douglas Fir and Hemlock logs, reflecting continued deterioration of the US housing and lumber markets.

As an example, US housing starts on an annualized seasonally adjusted basis averaged 500,000 in first quarter of 2009, a decreased from 700,000 in the fourth quarter of 2008 and less than one-third of the five-year average level. Also nominal lumber price in the first quarter of 2009 declined to levels last seen in the first quarter of 1985.

In real terms, lumber prices were 50% of the prices realized in 1985. Early in the second quarter, we are seeing few signs that the environment is improving as industry participants seem to be adjusting expectations for a prolonged slump.

Unfortunately, as the quarter progressed, we also encountered a rapid slowdown in Japanese demand for logs and a corresponding decline in prices. This weakness reflected a combination of decreasing Japanese housing starts and renewed confidence in the availability of Russian blogs as Russia delayed implementation of its export tax. Pricing also came under pressure late in the quarter as buyers in Japan reacted to the historically high differential that had developed between log prices in the US and Japan.

One of the key attributes of our timber business is the operating flexibility that allows us to maximize the value of our business by deferring harvests and growing inventories during weak market cycles. These inventories are preserved for harvest when prices recover.

Until we see signals that sustainable demand is increasing, we plan on reducing harvest to the minimum levels required to service our key customers. We expect harvest levels at our Canadian US operation to be 31% and 48% below 2008 levels respectively for the full year 2009.

Prices would need to increase at least 20% from current levels before we begin ramping up our harvest again. We currently do not expect this level of price increases until the latter half of 2010.

We believe conditions in the timber market are unprecedented albeit temporary. Once inventory levels stabilize and housing starts normalize, we believe og prices will rebound and exceed historic trend levels due to very attractive supply dynamics such as the impact of the mountain pine beetle infestation and the Russian export tax.

Furthermore, we have financed our assets on an investment grade basis, free of restrictive covenants so that we can take a long-term perspective and manage our business in a manner to maximize future cash flow for unitholders. Turning now to our transmission business, in the current political environment we're more optimistic than ever regarding opportunities to invest in the transmission sector.

Our premise for transmission has been that it is a critical link between power production and consumption and is a very small component of the end user electricity bill. Today many governments have also realized that investment in transmission is essential for them to achieve their environmental and energy independence objectives.

As a result, we are seeing further emphasis on enacting favorable regulatory frameworks to attract a required investment into the sector. In February 2009, US Congress passed a $787 billion stimulus plan which includes approximately $110 billion of tax incentives, loan guarantees and direct spending for renewable power.

In addition, President Obama is committed to proposing CO2 legislation and a national renewable portfolio standard which would establish a 25% minimum amount of electricity to be produced from renewable energy resources by 2025. Wind power is currently the most economic form of renewable power.

Since the best large-scale wind resources in the US are in the middle of the country whereas population centers are predominantly located on the East and West Coast, this emphasis on renewable power will require billions of dollars of investment in the transmission grid. With this transmission development group, the buildout of the US transmission grid plays to Brookfield's asset management strengths.

In January of 2009, Brookfield together with its 50% partner Isolux was awarded the right to build a $500 million transmission system in Texas. This project was the result of a legislative initiative that identified $5 billion of projects to increase the capacity of the transmission grid to deliver power from plant expansion of wind generation in that state.

We believe this is indicative of the type of opportunities we will be able to pursue in the transmission sector. We are particularly excited because this project is low risk and we believe it will yield attractive risk adjusted returns.

Going forward, all prudently incurred costs including development, construction and financing costs will be eligible for recovery in future transmission rates. Furthermore upon completion, Brookfield and its partner will be a licensed transmitter in Texas and should be able to build this business by participating in future expansions of the Texas grid as an incumbent utility.

Financial close of the Texas project is expected in early 2011 with commercial operation approximately 18 months later. Brookfield Infrastructure will have the opportunity to participate in this project.

We see a similar pattern in Canada where we can leverage the incumbency and advantage of our Ontario transmission operations. We also continue to be excited about the opportunity to grow Transelec's backbone transmission system in Chile.

Last year we announced a five-year plan to invest $1 billion -- that's on a 100% basis -- in expansions of the grid that will yield very attractive returns. In the first quarter of 2009, a number of these projects were deferred due to temporary permitting delays and also due to the current economic climate.

Nonetheless, $13 million was invested and the project backlog stands at $260 million as at quarter-end. Although Transelec's growth CapEx will likely be more back-end loaded, we remain optimistic that its growth plan can be achieved. Now I would like to turn the call over to John to review our financial results.

Thanks Sam. Now I would like to spend a few minutes walking through our financials.

In our supplemental information which is available on our website, we have provided our first-quarter results for 2009 and 2008. I will focus on ANOI which is net income plus depreciation and amortization, deferred taxes and other items.

We highlight this metric because we believe it is a good proxy for cash flow from our operations which is the key driver of our business. As Sam mentioned, for the first quarter of 2009, Brookfield Infrastructure's ANOI was $8.8 million compared to ANOI of $18.9 million in the first quarter of 2008. I will now provide detail for each one of our segments.

On a proportionate basis, our transmission operations earned ANOI of $11.5 million in the period compared with $15.8 million in the prior year. The primary reason for this decrease was a $5.3 million reduction in dividend income from PBE which is paid on a periodic basis.

For the quarter, Transelec's proportionate ANOI was $7.8 million compared to $5.9 million in 2008. However, our ownership of Transelec increased from 10.7% to 17.8% in April of 2008.

On a comparable basis, ANOI was $7.6 million in the first quarter of 2008 after adjusting ANOI by $4.7 million to reflect the increased ownership of Transelec and removing non-recurring revenue of $3 million which was earned in the first quarter of 2008. On this comparable basis, ANOI increased nominally as increases in revenue from inflation indexation and the benefit of growth CapEx were largely offset by devaluation of the Chilean peso which impacted revenues, operating cost and interest expense.

Operating margins at Transelec were 83% for the quarter compared to 85% in the prior year. The primary driver for the decline was an increase in engineering revenue which has an operating margin of 15%. The engineering business is a key part of our growth strategy as it enables us to participate in higher risk transmission development projects while covering our associated overhead.

For the quarter, our Ontario transmission operation's ANOI was $3.4 million compared with $4.3 million in the prior year. The decline in ANOI was largely due to weakening of the Canadian dollar and to a lesser extent, increases in operating expenses associated with the stand-alone operation of our transmission business following its separation from the previously integrated electric utility. We plan on filing for recovery of these stand-alone operating costs in our upcoming rate case.

In the first quarter our timber operations generated $1.8 million of ANOI versus $4.7 million in 2008. As Sam discussed, our timber operations continued to be impacted by softness in the US housing and lumber markets.

In our Canadian timber operations, harvest and sales volumes decreased 26% and 24% respectively in the quarter versus '08. During the quarter we continued to increase the percentage of appearance grade products in our mix. These products yielded higher margins net of transportation costs in the Japanese market despite the recent softening of prices.

Export volumes represented 39% of shipments in the first quarter of 2009, up from 35% in '08. As a result of the significant component of exports in our product mix, the year-over-year decline in our average realized Douglas-fir price was 6% while average sales prices of indicative products in the US fell by approximately 18%.

Cost per unit decreased 6% versus 2008, primarily as a result of the depreciation of the Canadian dollar which reduced our expenses. As a result, our operating margins increased to 34% for the quarter versus 32% in 2008.

In our US timber operations, harvest and sales volumes in the quarter decreased 14% and 24% respectively compared to 2008. Shipments were less than harvest in the current period due to the timing of export sales which depend on availability of transport vessels.

Export volumes declined to 26% of total shipments in the first quarter of '09 from 28% in '08 due to the timing of shipments mentioned above. The high percentage of exports in our product mix mitigated the year-over-year decline in our average realized Douglas-fir price which was 13% while indicative domestic prices declined by 26%.

Harvesting and delivery cost per unit decreased 14% compared to 2008 principally due to lower fuel prices as well as shorter haul distances. This decrease in cost helped to increase overall margins to 36% in the quarter from 35% in 2008. Before concluding my remarks, I would like to give an update on our previously disclosed sale of TBE.

In March of 2009, the transaction was approved by ANEEL, the Brazilian electricity regulatory agency. The transaction remains subject to the approval of BNDS, the Brazilian Development Bank, which is a lender to TBE.

Following this approval, closing of the sale is expected to occur by the end of the second quarter of 2009. Concurrent with the exercise of the put option, we entered into a foreign exchange hedge to lock in projected proceeds in US dollars.

We expect to receive approximately $275 million of after-tax proceeds from the sale, of which $27 million was received from realized hedge gains in 2008 and an additional $43 million was received from realized hedge gains in the first quarter of '09. The proceeds will be used to repay corporate borrowings, fund growth capital investments and acquisitions as well as for general corporate working capital purposes.

This concludes my remarks. Now I will turn it back over to Sam to walk through corporate initiatives and outlook.

Thank you John. Before I conclude, I would like to review our financial position and corporate initiatives.

Our credit facility matures in June 2011. However, our ability to make further draws under it expires this June.

We are currently in the process of talking with lenders to extend our ability to make future draws on the facility. This facility is designed to be a bridge to equity issuance rather than permanent capital.

In the current environment, any acquisitions we may make are likely to be of a smaller size given what's going on in the credit markets. Further, credit is scarce and as a result very costly.

Thus we would likely reduce the size of our facility to one that is more appropriate for our business and this environment. However, with expected cash on our balance sheet of approximately $90 million following the sale of TBE combined with our credit facility, Brookfield Infrastructure will be in a strong position to capitalize on attractive opportunities.

We continue to believe that we own premiere operations that produce strong cash flow over the long-term. When we set our initial distribution levels back in January 2008, we tried to size the distribution based on the normalized cash flow of our existing operations, targeting a payout ratio of 60 to 70% of ANOI.

While we recognize that our current payout ratio exceeds this target due to depressed log prices, we are comfortable at this time that we have sufficient liquidity to bridge the (inaudible) of our current estimation distribution level until timber markets recover. However, we plan to regularly assess the situation and balance this use of our capital against other uses of capital in order to maximize value.

The deep recession in North America as well as the mild recession in South America has impacted many infrastructure companies. Historically, infrastructure stocks had low correlation with traditional equities due to their stable cash flow characteristics.

In the past year, however, infrastructure stocks including Brookfield Infrastructure Partners units have traded off largely trending in line with the broader equity markets. In the current environment, we believe infrastructure investments will earn above-average risk adjusted returns and Brookfield Infrastructure, with its strong liquidity position and high-quality assets, is well-positioned to prosper.

This concludes my formal remarks. And so, operator, we would be pleased to take any questions that people have.

(Operator Instructions) Brendan Maiorana, Wachovia Capital Markets.

First question as it relates to -- on the timber side. Understand the operational flexibility that you guys have with the organic growth of your trees and I understand that you don't have financial covenants that would restrict your harvesting levels financially.

But you do have partners in both the [Island] and Longview operations and cash flow in this quarter was negative just on an overall basis. What is the financial flexibility that you guys have to defer further or I guess to defer harvest levels further or from where they are right now, given that you've got some financial partners and that cash flow is negative in the current quarter?

Hi Brendan, Sam here. Maybe I will start off and John can jump in.

You're right. We have partners in both those operations and those partners are very well capitalized pension funds that share the same long-term philosophy towards these assets.

And currently with respect to the Canadian operations, we don't expect that there will be any capital required to go into that business, that it can service its debts with even at the current harvest levels that we're operating at and at the current price levels that we are forecasting for that business. There may be some capital required to fund interest in the US operations.

We have already discussed that with our partners and we along as them will provide additional capital as needed. At this stage, it's a relatively modest amount. We are estimating for Brookfield Infrastructure's share that it would be approximately $13 million for this year.

$13 million at the BIP level that you guys would potentially need to commit into Longview?

That's correct.

Okay and in terms of the recovery, do you still expect the long-term -- do you see any deterioration in terms of the long-term trends that you guys had talked about on the pricing level or the harvest levels?

No, we are seeing no change in the medium to long-term outlook for the business. In fact, I think given the sharpness of the downturn; I think if anything, it gives us confidence that when the recovery comes back, it will come back hard and we will see very strong prices for a much longer period of time.

Okay and then just lastly on timber. Why were the CapEx -- the maintenance CapEx levels so high in this quarter relative to the past couple of quarters?

Regarding the maintenance CapEx, we did have to do some required roadwork. So that is something that is not particularly regular. So just given the weather and our harvest plan, it was something that impacted the first quarter but that's not something that should be an annualized type expense.

Just more broadly, as it relates to your capital plan, you have got I guess your share of the Transelec backlog is probably around $50 million. There's about $250 million of the project cost on your share for Texas. That's $300 million total.

I know you talked about the dividend level, Sam. You guys bought back some shares in the quarter.

Just thinking about $300 million of kind of future commitments, you've got $200 million of proceeds from TBE that are coming in. How do you guys think about your capital plan over the next couple of years? Do you feel that just based on what's in queue right now that you feel you have got adequate capital where you wouldn't need to raise external capital, at least external equity capital?

I'll take that one Brendan. It's John.

Regarding TBE, we look at the cash flow that business is generating combined with the CapEx facility that we have got and the ability to refinance that CapEx facility with permanent capital. We think that the CapEx can largely be funded in part by reinvesting cash flow that the business is producing.

So the net effect is it will reduce the amount of distributions that we're getting from that business. But nonetheless, we still with that capital plan anticipate getting distributions on a going-forward basis.

Regarding the Texas business, one of the things we do need to determine over time is how much investment BIP is going to make in that business and it in part is going to be a function of the capital position of BIP when we get to financial close in 2011. So that is something that we will actively evaluate as part of our capital plan.

Okay, thank you. And then have there been opportunities where you guys were willing to do the deal or pull the trigger, but the inability to find capital partners and the size of the deal just made it that it was -- that you couldn't get across the finish line?

Maybe I'll tackle that one. I think your question is have we locked up transactions but then weren't able to proceed because of lack of partners or lack of credit facilities or our available bank debt.

We have over the last number of quarters seen some interesting opportunities. I think from our perspective, there are several elements that we weigh. One of them is whether or not the timing is right to make an acquisition because we feel we can get better value by being a little more patient.

I think that's definitely been the case for the last couple of quarters where we think we have seen sellers become a little more distressed and a little more eager to accept lower prices. So I think that's one thing -- one element that we have been waiting on.

Clearly there has been a scarcity of capital from the bank market and I think probably the part that would make it most challenging for us isn't so much the availability of capital because we have great relationships with banks and a strong willingness for them to support us on transactions primarily because we finance them on a conservative basis. But the big issue in the bank market today is that there's a strong reluctance to provide tenor.

Most of the facilities are bridge facilities, six months, twelve month, eighteen months. They're very expensive. And that's just not the type of capital that we would be prepared to take on today with a lot of the uncertainty regarding refinancing. And so until we have the ability to get longer-term financing in place with banks or more comfort on takeup facilities, I think we will be very cautious in our approach to acquisitions.

Thanks and then just last one if I may. I know you guys are sensitive around fund disclosures but there was an SEC filing for Brookfield Americas Infrastructure Fund that was completed earlier this month. Is there anything that you can share as it may relate to implications for BIP?

Maybe the best way for me to answer that is we disclosed in the past that the opportunities that we're going after in the infrastructure space are very large scale acquisitions. So our capital strategy always has been to -- for BIP to partner with other Brookfield relationships via consortiums or Brookfield sponsored funds in order to amass enough capital that Brookfield controls so that we can do some of these bigger deals. So I would say that the Brookfield Americas Infrastructure Fund is executing that capital strategy that we have discussed before.

Andrew Kuske, Credit Suisse.

I'll just start with a little technical, nit-picky question on Ontario. There is a decision that came out from the National Energy board on the Trans Quebec Maritime Pipeline that really revisited the regulatory methodology on returns using a (inaudible) type approach. Do you see things changing when you file for new regulated rates in Ontario? Do you see the returns biasing upwards for that asset?

That's a great question Andrew. It's John. There was a similar ruling that came out with respect to Hydra One's recent rate case.

And historically what the regulator has done in Ontario is they have based ROEs as a spread to treasuries. And there is a recognition in the current environment that because treasuries are so low, that the spread they have historically used does not adequately compensate equity owners of utilities.

So what they said is they need to review and change that methodology in order to increase returns to fair levels. So the question really is we are filing for a rate increase end of this year. So I'm not sure that that new methodology will be in place for this rate filing. But we would expect that it would be in place if not then, by the next rate filing.

What is your initial sort of anticipation on where returns could go from a basis point spread over treasuries at this stage?

It's hard to really gauge that, Andrew. One of the things that we have been doing with respect to our transmission business in Ontario is we have been pretty actively lobbying the regulator, the government officials etc. and we have been walking them through the returns you can get investing in transmission in the United States and the approach, where there is a base return on your existing asset, but then there's incentive returns to the extent that you invest in new projects.

We have been trying to make the argument that capital is fungible and for there to be capital to fund the significant buildout in Ontario that it's going to have to be competitive with US returns. US returns for transmission, you typically will see base ROEs that are probably in the 11% and change rate and with incentives, you can get up to a high 12s. I am not sure that Ontario is going to get quite to that level, but we would hope that it's going to be significantly above where it is today.

That's great color. And then just if we could talk about the cost of borrowing under the credit facility and just how you are seeing that change especially with the negotiations you have going on right now with your bank syndicate.

As is in our public filings, our current cost of borrowing is L plus 275 and we think that in this environment, with the scarcity of credit, that is probably lowish. We don't know where that is going to settle out at but we don't anticipate there being more than call it a modest increase in the LIBOR margin. So we would expect it's probably going to be north of 300 but not that north of 300 based on where the current market is.

Okay, and then how do you see just your cost of borrowing in relation to your buyback activities? If we looked at where the stock is trading today, it's roughly I believe about a 7.8% distribution yield or thereabouts and nearly 8% distribution yield. So how do you think about that from an allocation of capital basis?

That's one thing that we have been actively discussing internally, whether we end up buying back, whether we preserve capital for acquisitions etc. And we have looked at the buyback as a mechanism of supporting the stock when it goes down to levels where we think it is quite low.

The average price that we bought it back thus far is a little bit over $11 per unit. But given the size of the program that we have gotten approval for, it is in gross size in the 20 to $25 million range.

So we don't see it as being a substantial use of capital. We look at it as supporting the stock if the stock has significant weakness. We think we are investing at great value when we buy our stock at those levels.

That's great. Thank you very much.

Robert Kwon, RBC Capital Markets.

With the one approval on the TBE in place, do you see kind of any concerns or pushback on the last approval from the bank?

The last approval is from BNDS. It's basically a lender consent. So we have got a very good relationship with BNDS.

(inaudible) is a state owned utility in Brazil that has obviously a very good relationship with BNDS as well. And they are a current owner in the project. So any sort of issues associated with the lender consent, we don't see any that would be meaningful at all.

And then just turning I guess to timber. One of the things on the op cost you certainly mentioned, the (inaudible) but also shorter haul distances. Is that something that you kind of expect to bring your overall cost strategy down in the near term or is that very isolated to Q1?

This is Sam. That's really a function of the harvest levels that we are currently operating at. So the lower amount of production from our lands, typically it's easier to supply customers that are closer by.

So essentially you would expect to have kind of this lower cost structure through the rest of this year and into say mid-2010, is that fair based on your outlook number?

That is correct. Obviously quarter to quarter, there are some seasonal changes depending on where we are harvesting. We tend to have a lot of our lowest cost harvesting in the first quarter because we are harvesting second growth stands that are not at higher elevations. Typically we harvest at higher elevations in the second, third quarter.

You referenced in your letter around the distribution and how you see it being maintained at the current levels but you're constantly reviewing it. I think that's at least in your language at least compared to what you wrote about in the last quarter. Can you talk about some of the considerations and even some of the soft considerations with respect to what signaling a distribution cut would have and how you compare your distribution against some of your other opportunities in making decision on that allocation of capital?

It's John, Robert. The distribution is something that we think is important to maintain from a credibility standpoint with the capital markets, particularly as we look to grow this business over time. And in growing the business, we would hope to be in a position to be able to issue units in the future.

However, we also recognize that in the current situation, the payout ratio is quite a bit higher than where we want it to be. If we look forward, we've got sufficient liquidity to bridge based on cash that we've got available through when we see the timber cycle turning around.

So we think we've got sufficient liquidity to maintain it. However, we also are cognizant that if we spend dollars on the distribution, that reduces dollars that we have got to make acquisitions and various other things. So we are going to balance the payment of the distribution against other uses of capital and actively monitor it.

Is there any kind of numerical with respect to the percentage or the yield on the distribution versus the returns that we can be thinking about? Or -- it's (inaudible) in the current market you're fine with the distribution but how much would say returns have to increase based on kind of the level or the yield that you are trading at right now where you would think about cutting the distribution to make that acquisition?

Hi, this is Sam. I don't believe that's the way we're currently looking at it. The way we are looking at it is still sizing the distribution based on our expectations on the long-term payout and the generation of cash or from the business which we still believe is at the levels that we set originally. I think the -- as John mentioned, the item we will probably take into account the most is whether or not we have other uses for that capital such as acquisition opportunities.

I guess just the last question I have got. You referenced, Sam, just in your closing remarks about kind of infrastructure and the correlation with the markets. In addition though, just kind of how are you viewing or how has the downturn impacting your views on other types of infrastructure with respect to the appropriateness for the partnership or at least the expected level of returns you might target?

I would make a couple of comments in that regard. I would say the first thing is with respect to the stability and sustainability of earnings, I think the utility sector in particular has demonstrated the characteristics that we espouse in the infrastructure sector.

They have been growing, they have been reliable and we have really seen very little volatility in that particular part of the spectrum. Obviously as it relates to transportation businesses, as it relates to our own timber business, we have seen probably more volatility than we would have expected. Nonetheless, we think what's great about those businesses is that they have long-term business profiles, have barriers to entry and we think that you will see a recovery in their results in the medium to long term.

So I guess in terms of your approach of the percentage of those businesses with respect to wanting to have distribution stability, has that changed your approach though or is really kind of as long as you can get something at what you think is an appropriate price and do you look at different hurdle rates between the two trying to account for the stability on the utility side versus let's just call it the timing on the transportation and timber side?

I think your question is have we changed our return thresholds.

Well it's a combination of that and just the mix of assets you would be targeting given the higher volatility we have seen in the cash flows from some of the other businesses versus some of let's call it the more traditional forms of infrastructure.

I see. So the two comments I make on that regard, with respect to returns given the market, environment, we have pushed up our return thresholds from historically if we would have mentioned 11 to 15% depending whether it's utility sector versus transportation, we are probably somewhere in the order of magnitude 13 to 17, 18% on average.

And then with respect to weightings in particular sectors, there's a number of factors that go into regard there. I think we like the sectors. We still like all three sectors -- timber, transportation and utilities.

I would say from a value perspective and from an actionability standpoint, in North America in particular we think the opportunities in front of us are primarily in the energy and utility space. We see good value there and we see a number of situations that we can act upon and it's an area where the lenders today are most comfortable in providing capital to us.

And so looking forward, I think that will be where most of our energy will be devoted. To the extent we're looking at opportunities in South America, there's probably a far more broad-based array of opportunities for us down there that include some transportation investments, primarily on the toll roadside and on airports.

But just to finish that off, when we price an investment, we price it based on the relative risk we see in the asset class. So to the extent we see higher relative risk, then we will seek higher returns for that asset relative to another.

Peter Sklar, BMO.

I just want a better understanding of your participation in the Texas projects. So my understanding thus far is that you've won this project based on this 50-50 partnership. But could your participation change in terms of the equity contribution to the project and then as it comes online as an operator of the transmission facilities? Or are you committed to a 50% participation all the way through the course?

Peter, it's John. I will answer that question.

Brookfield Asset Management is a 50% partner with Isolux. And in the beginning of 2011, we anticipate financial close at which point we think that Brookfield's share of required investment will roughly be about $100 million.

We also look forward and we think that there is good opportunity to grow that business because a lot of the wind farms that are being built in West Texas will have to connect to our system and we will have the opportunity to build those lines for those wind farms. And also, we think there's going to be further installments of the [krez] process as they need to further build out the grid.

So we take a look at it and one of the things with respect to BIP that we will be evaluating is -- our capital strategy as I was talking about earlier in the call has been for BIP to partner with other Brookfield sponsored consortiums or partnerships in order to invest in deals. So given the size of the initial capital investment as well as what we think the future equity capital that will be required, we will evaluate to what extent should we leverage a Brookfield sponsored partnership to do it so that BIP has got sufficient liquidity following making an investment to be able to pursue other opportunities and other uses of capital that it has. So that is something that we're going to be evaluating over the 2010 timeframe and it will be a function of the size of the opportunity compared with BIP's liquidity position.

So the initial $100 million commitment that you foresee, does that represent 50% of the equity required for the project?

That's correct.

Of the $500 million, does the capital structure then look like it's going to be about $200 million equity and $300 million debt? Is that what you're saying, John?

$200 million equity. The overall capital costs of the project is probably going to be higher because there's things like interest during construction development costs and things of that nature. But we anticipate that the equity commitment on a 100% basis will be $200 million.

And then as you move into the operation phase for the initial project, again is it contemplated that you would have a 50% interest or could you sell up or sell down? Is that possible?

We would contemplate that Brookfield consortiums are sponsored funds, which would include BIP, would control 50%. We would not envision selling down from that and Isolux is pretty committed to the project as well. So we think 50% is a good way to look at it.

On another matter, there's a $6.1 million unrealized loss related to Longview. Could you explain what that is? Is that a marked to market calculation?

Yes and the best way to explain it is when we invested in Longview to maintain our 30% ownership, a large part of that investment was done through a participation in the Brookfield Global Timber Fund.

That is accounted for on a fair market value basis. So we roughly have, if we look at our Longview investments, 23% of it which is accounted for on a historic cost basis and 7% which is accounted for on a fair market value basis. There was an appraisal done as of year-end that reduced the value of Longview which is what gave rise to that non-cash loss.

And so this is an adjustment we could see on an annual basis?

That's correct. There will be annual valuations and because that 7% will be accounted for on a fair market value basis, there will be adjustments based on the valuation that will be non-cash.

Michael Goldberg, Desjardins Securities.

Given the terms of your bank credit facility, is there any incentive for BIP to draw before June and would you satisfy the necessary conditions to do so?

It's John. I'll take that.

Following the close of the TBE sale, we will be able to fully pay down the facility. If we look at what we can do under the facility, we could draw down on the working capital piece which is $135 million of the facility.

However, we are confident that we are going to be able to extend the commitment period with the banks that we are working with. And what we are focused on doing is sizing the facility to a level that we think is consistent with the size investments that BIP is going to be able to make in this marketplace.

And in doing so, we will have a facility that is right-sized for opportunities but also where we are going to save money with respect to commitment fees and various other fees that based on $450 million in this environment we don't think we can necessarily utilize.

So you could potentially draw on the $135 million working capital portion of the facility but would I be correct in saying that you wouldn't be permitted to draw on the $315 million that's purely set for acquisitions?

That's correct.

And you said that your rate on drawings is LIBOR plus 275. What is your commitment rate now?

The commitment fee (multiple speakers) 35% of the LIBOR spreas, so 35% of 275 basis points. It's approximately 100 basis points.

And what -- you said that the challenge is getting the tenor that you're looking for in the facility. What kind of term to the facility are you actually looking for?

It's Sam. Just to differentiate what I was referring to, what I was referring to was facilities related to acquisitions and not our acquisition line of credit, although the issues are one in the same.

Today we have a three-year facility and I think if we are successful -- and we're relatively advanced in our discussions with the banks. We would like to have at least two years term to the draws and to the commitment at a minimum.

The structure may revert back to one and three. It's hard to say exactly where it would go. I think at this stage as John mentioned, we're very comfortable that the banks are there and providing the capital and it's just a matter of negotiating the final terms with them.

Just to add one point to that, the way the facility is currently structured, if we draw, we have three years to repay which we think is sufficient term. I think what Sam was referring to mostly is if you are looking to buy an asset, acquisition facilities for the debt component of the financing, right now it's pretty difficult to get more than one year or 18 months. And in this market environment, having only one year to refinance a bridge facility is something that we would think very hard about because as you know the capital markets have been quite choppy.

Could you give us some indication of what the additional cost of -- that you're finding for a one-year commitment versus say a three-year commitment might be?

It's hard to give an exact number on that because there is just not that many transactions that have been happening right now. But I would say that for a one-year facility, for an investment-grade credit, a one-year acquisition facility, you're looking at spreads somewhere in the 300 range, 300 plus range (multiple speakers) 350.

More term is going to be more expensive because banks right now don't want to have that duration commitment on their books. But it's difficult to give you a sense as to what kind of premium that is going to cost in this market because there's just not that many examples.

(Operator Instructions) There are no more questions at this time. I will turn the call back over to Mr. Pollack for any closing remarks.

Thank you operator and thank you everyone for joining us today and we look forward to speaking to you again next quarter. Bye.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines, thank you for participating and have a pleasant day.