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Tim Boreham | December 04, 2008 Article from: The Australian
WELCOME to "pay if you can", a new concept in lending that, hopefully, will catch on with Criterion's credit-card provider as well.
Yep, the floundering Babcock & Brown has not only been delivered $150 million in emergency cash as expected, but interest payments on its revamped $3.1 billion of debt will be based on the “operating funding needs” of the group.
“This represents an immediate and substantial benefit to the company as it seeks to divest assets and refocus its business,” Babcock & Brown says.
You can say that again. In short, the banking syndicate has baulked at the chance to send the company down, opting to provide valuable breathing space for management to execute asset sales with a headline value of $7.5 billion.
Speculators who jumped into the stock ahead of its November 20 trading halt have fared much better than Allco investors, who punted on bankers' generosity: on resumption of trade this morning, Babcock stock leaped more than 100 per cent.
Of course, the bankers have not so much saved the stock, but commuted the execution date pending further appeals. Much more work has to be done to implement the capital restructure, which involves a debt for equity swap.
In the meantime, Babcock is shrinking to greatness in its quest to discard its real estate, operating leasing and structured finance activities in favour of being a pure infrastructure play.
Management has until January 9, 2009 to offer up a revised business plan, which means Christmas will be more about loan-packaging than gift-packaging.
In theory, there’s still value in the stock if the assets - including the fabled European wind power portfolio - can be offloaded at a half-decent price. But there remain plenty of sticky issues, including the satellite funds, such as Babcock & Brown Wind Power, which are distancing themselves from the mothership and can no longer be relied on for a friendly asset purchase or two.
In Criterion's view, too much needs to go right for Babcock to get taken off the critical list. And if the bankers' relief does create value, guess who will benefit: the bankers perhaps?
Babcock should use today's price strength to cut their losses and sell. We still don't want to doss down in this BNB.
