babcock and brown refutes covenant breach

Babcock & Brown refutes covenant breach

The Spectators

By Reuters, AAP, with a staff reporter

Australian investment firm Babcock & Brown Ltd, which lost half its market value last week on debt concerns, began talks with its lenders on Monday and said it would speed up a review of its underperforming funds as it looks for ways to raise cash.

Babcock's market capitalisation fell below $2.5 billion last week, a level below which lenders have the option of reviewing the terms of the group's three-year $2.8 billion debt facility.

The company has repeatedly said it has not breached terms of the loan, and creditors have yet to decide whether to launch a full-scale review, but analysts say it is facing a confidence crisis as investors worry it might run out of money.

A spokeswoman said B&B was holding talks with its bankers about the issue. "They start today and they will probably go for a number of days," she said.

The firm is the latest Australian company to fall victim to the global credit crunch, following the high profile collapse of Centro Properties Group and Allo Finance Group Ltd.

Babcock, which manages about $72 billion in global infrastructure assets, said it would accelerate a strategic review of its listed funds, aimed at raising cash and lowering debt. Credit Suisse estimates the total debt across Babcock and its investment funds at about $46 billion.

Meanwhile, Babcock & Brown Ltd.'s European Infrastructure Fund has increased its stake in UK ports operator, Forth Ports Plc. to 23.5 per cent, reports Thomson Financial.

On June 12, Babcock & Brown upped its holding to 10.73 million shares from 10.13 million, held indirectly via Cayman Resources Ltd.

Asset sales

Babcock also said it would receive indicative offers for its European wind energy assets this week and expects a deal to be concluded in the fourth quarter of this calendar year.

"There is a strong possibility of asset sales," said Jamie Spiteri, manager of institutional sales at Shaw Stockbroking.

"Some of the wind assets in UK and Europe would meet immediate demand and they would be able to meet raise capital quickly," he said, adding that bigger rival Macquarie Group Ltd was a potential buyer for some of the assets.

UBS estimates the sale of European wind assets could add about $300 million to Babcock & Brown's net profit for the current fiscal year.

Babcock, like Macquarie, buys assets such as ports and power utilities and then bundles them into listed and unlisted funds from which it earns management fees.

The business model relies heavily on debt to fund the purchase of the assets and to continue to grow revenues, but the rising cost of credit amid the global credit squeeze has made it difficult for companies such as Babcock to raise money.

"There is no confidence out there at the moment. There are a number of variable outcomes there and the market as a whole doesn't have enough confidence to take a definite view," Mr Spiteri said.

"We will move as quickly as possible to restore investor confidence in a decisive yet orderly manner," B&B's chief executive, Phil Green, said in a statement to the ASX.

Despite Mr Green's vows to win back investor confidence, analysts remain sceptical on the outlook for B&B and some of its heavily indebted funds, reports The Sydney Morning Herald.

"It really depends on how the negotiations go with the banks," said an ABN Amro analyst, John Heagerty.

B&B's delisting of its underperforming listed funds was "theoretically" possible, he said.

Debt woes

Babcock & Brown said in a statement that its creditor banks had not yet decided whether a review was appropriate. The statement was issued in response to inaccurate commentary in relation to its debt facility, the company said.

It did not elaborate and company officials were not immediately available for comment.

Babcock & Brown shares ended flat at $5.25 on Monday, valuing the company at $1.75 billion, a far cry from its life-high of $34.78 reached in June last year.

Macquarie, Australia's top investment bank, saw its share price get caught up in the backdraft from Babcock's woes last week, hitting three-month lows. It fell 1.1 per cent on Monday to $48.65.

Babcock said it plans to appoint independent chairmen to the boards of four Australian-listed funds -- Babcock & Brown Infrastructure , Babcock & Brown Power , Babcock & Brown Wind Partners and Babcock & Brown Residential Land Partners -- as part of its strategic review.

Babcock's lenders extended the debt facility in March to April 2011 but reserved the right through debt agreement covenants to review the facility if the company's market capitalisation fell below $2.5 billion.

If its market capitalisation is still below that level at the end of the four-month review period, it's possible Babcock & Brown would have to repay the loan within 90 days.

The review also means that Babcock would require the lenders' approval to distribute dividends, analysts said.

The Australian unit of British bank HBOS plc was the lead arranger for Babcock's debt facility, with some 25 local and international banks providing the loan.

B&B Power refinances $2.7 billion debt facility

Separately, Babcock and Brown Power (BBP) has successfully refinanced its $2.7 billion debt facility, saying the financial close and settlement is the step towards consolidating its long term capital structure.

The troubled group still has to complete its asset sale program and finalise its corporate debt facility of up to $360 million, and parent Babcock & Brown has advanced $190 million on market based terms

to provide short term funding towards the group's previously announced funding requirements.

"The successful financial close of the $2.7 billion refinancing represents a fundamental step in consolidating BBP's long term capital structure," BBP's chief executive Paul Simshauser said in a statement after market close on Monday.

BBP said it has received a number of indicative bids, the total value of which is greater than the amounts outstanding on the BBPH corporate facility.

"Through a combination of asset sales and refinancing, BBP is aiming to finalise the previously disclosed outstanding funding requirements by 31 August 2008," the statement said.

Shares in Babcock and Brown Power rose 2.8 per cent, or $0.02, to $0.73 on Monday.

GPT unaffected by Babcock woes

Meanwhile, property fund GPT has distanced itself from Babcock’s woes, saying there has been no effect on its debt position and that the portfolio's sale of assets was on track, reports The Sydney Morning Herald.

According to the paper, Neil Tobin, GPT's general manager of the joint venture, confirmed the fund's debt was non-recourse to GPT and Babcock & Brown, there are no cross default provisions and no conditions relating to the financial position of Babcock & Brown.

"GPT is in discussions with B&B with the objective of accelerating the return of capital from the joint-venture fund, as assets are realised in the ordinary course of the fund's operation," Mr Tobin said.`