By George Lekakis and Andrew CarswellJune 18, 2008...

By George Lekakis and Andrew Carswell

June 18, 2008 12:00am
Article from: Herald Sun

SHARES in embattled financial engineering specialist Babcock & Brown and its satellite funds surged yesterday.
The surge came after rising hopes that the debt-laden group will be able to reduce its interest-bearing liabilities through asset sales.

Group chief executive Phil Green promised on Monday to accelerate asset sales across the group to improve its balance sheet position.

Babcock & Brown Limited scrip rose 68c or 13 per cent to $5.93, while one of its most battered funds, Babcock & Brown Power, rose 12c, or 16 per cent, to 85c.

B&B Power confirmed on Monday night that it had finalised the refinancing of a $2.7 billion debt facility with its banks.

Most other B&B vehicles also retrieved some of their heavy losses of the past few weeks, with B&B Wind Partners and B&B Capital each rising by more than 5 per cent.

Moody's warning

B&B Infrastructure rose 3c to 87c despite a warning from Moody's Investors Service that it might downgrade its senior credit ratings.

"Today's rating action reflects Moody's concern that B&B Infrastructure's credit profile may no longer be consistent with an investment grade rating, given the continuing challenges evident in its liquidity position," said senior analyst Clement Chong.

"The rating action also considers B&B Infrastructure's diminished financial flexibility - due to expectations of its constrained access to capital - coupled with its need to make ongoing distribution payments, which lead in turn to negative free cash flow."

Moody's said it would be reviewing various subsidiaries of B&B Infrastructure, including its Australian and British finance arms.

Allco makes gains

Shares in another troubled financial engineering company, Allco Finance Group, almost doubled yesterday after it sold its US wind project to retire debt.

Although the share rally was welcomed by shareholders, most are still sitting on big paper losses. Allco shares were trading as high as $11.65 nine months ago.

Allco offloaded its Tehachapi wind development project to a US consortium for $346 million and said it would use the proceeds to pay down its debt by $230 million.

As a result of the sale, Allco will now target a senior debt level of $675 million by July 31 -- a figure frightfully more than three times the market value of the company.

Its shares added 25c yesterday to close at 54c.

http://www.news.com.au/business/story/0,23636,23882758-462,00.html