reason for th, page-19

seems its one of the offshore banks crying wolf.


Last gasp for Babcock
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AdvertisementMichael West
November 20, 2008 - 1:36PM

Bang in the wake of its one-minute-to-midnight restructure, one of Babcock & Brown's offshore banks has moved to protect its security by freezing funds on deposit.

We don't know the identity of the bank yet nor the figures involved but as Babcock stock is in suspension until Monday it is reasonable to presume a round of frantic survival negotiations over the next three days between the financial engineer and its retinue of lenders.

In light of the company's large debt load and its dependence on the satellite stocks for some 90% of its income a comeback from here is unlikely, though possible. What is highly improbable is survival in the medium term.

For one, the banks are relying on asset sales to reduce debt. There are simply no buyers at anywhere near book value in this market. Secondly, a quick glance at a couple of the satellites tells the story. At the June balance date the company had $131 million in carrying value ascribed to its stake in Babcock & Brown Power. The market value has shrunk to $3.4 million.

Carrying value for Babcock & Brown Infrastructure was $223.6 million at June and market value is now $6 million.

Babcock makes the bulk of its money from fees on these and other vehicles. The others have fared poorly too. Fees are struck on advisory work - there's not much of that about save asset sales - and on base and performance fees which are struck on market value - there's not much of that about either.

As part of the restructure it was interesting to note a proposal for a rash of retention payments for executives (it's good to see the boys aren't going down without a fight). One would have to ask however, are they at risk of going anywhere?

Over the past few months, as is de riguer in these matters, the banks have been considering their security positions. Each has its own agenda with respect to security but all will have been resigned to the prospect that at some point somebody would pull the pin. Simply, the potential for cashflow to cover the massive Babcock debts has been receding all year and the realistic prospects of survival had evaporated six months ago.

It would be nice to see a Lazarine recovery but a miracle is unlikely.

Another chapter on the rise and fall of some of this country's most scintillating entrepreneurs is drawing to a close - whether they scrape out of this latest bind or not.

Investors should note that if one Babcock entity falls it does not necessarily affect the solvency of other Babcock entities. Each should be assessed according to its merits.