rating for bbipl affirmed

(The following statement was released by the ratings agency)

Aug 21 - Standard & Poor's Ratings Services today affirmed its 'BB+/B' ratings on Babcock & Brown International Pty Ltd. (BBIPL) following the announcements by the company's parent', Babcock & Brown Limited (BNB.AX: Quote, Profile, Research) (B&B Ltd., not rated), of a 30% fall in group net profit for the half-year to June 30, 2008, against half-year to June 30, 2007, and replacement of selected senior management. The rating outlook is stable.

"We are not surprised that, in the current market environment, the group had had to make impairment charges against assets and investments, and the amount involved (A$441 million) is not outside expectations," said Standard & Poor's credit analyst Ian Greer. "The changes in the board and senior management are a positive move for implementing the next stage in the evolution of B&B Ltd.'s, and thus BBIPL's, business model. This change has been and will be assisted by B&B Ltd.'s stoppage of dividends, decline in employee bonuses, and planned reductions in debt and staff headcount."

The ratings on BBIPL continue to incorporate the risks inherent in the evolving nature of the company's business model. In this transition period for the strategy and into the immediate term, BBIPL remains exposed to initial project valuation, development, operating, and financing risks. The capital structure is still complex, and uses debt leverage at the corporate, asset-specific, and managed funds levels. These risks are partly mitigated by the company's approach to risk-return management and its practice of financing assets mainly through nonrecourse debt.

The stable outlook on the rating is underpinned by Standard & Poor's expectations that B&B Ltd. and BBIPL would be able to keep its bankers, especially the main syndicate, on side through executing its stated strategy, which would include (1) some orderly sale of assets; (2) focus on core business and earnings capabilities, including retention of key staff; and (3) restoring investor confidence, particularly that of the equity markets. It is unclear if recent and dramatic fall in the share price of Australian Stock Exchange (ASX) listed B&B Ltd. (ASX code: BNB) would have a contagion effect on the asset and fund management business of the group and confidence of the group's creditors.

The ratings may be lowered if asset sales, such as those for the European wind assets, do not proceed as expected, or exposure to Babcock & Brown Power (BBP.AX: Quote, Profile, Research) is not reduced as expected. The ratings may also come under pressure if the company's franchise is affected by a serious operational lapse, a perceived conflict of interest, high risk appetite, financial market volatility, or underperformance by assets under management. In the less likely event that B&B group breaches any bank covenant, particularly those of the main syndicate, the rating could be downgraded by multiple notches.