desperation at bnb

Desperation at Babcock & Brown
November 20, 2008
http://business.smh.com.au/business/desperation-at-babcock--brown-20081119-6bjc.html

THE stricken investment group Babcock & Brown has become increasingly desperate to keep its bankers at bay, yesterday announcing plans to jettison two of its three remaining businesses and slash 60 per cent of its remaining 1450-strong workforce to pay down a $3.1 billion corporate debt facility.

Barely three months since B&B announced plans to cull 400 jobs, the company announced it would increase the tally to 1000 and would seek a temporary reprieve from its bankers.

"We are concerned about the potential for us to breach a covenant," said B&B's chief executive, Michael Larkin, adding the company had no choice but to undergo a radical restructure.

The group, which has already retrenched 150 staff this financial year, said it needed time to sell assets in order to cut its debts and would find it "difficult to meet in the near term" its debt covenants.

B&B announced it would offload its real estate and aircraft operating leasing concerns - businesses it had said it would keep after its August restructure when it announced plans to wind down its structured financing operations. The new changes would leave the company solely focused on the infrastructure sector, where it is involved in the development of wind, transport, energy and PPP projects.

"We believe the better outcome for shareholders and our banks is to simplify the business," said Mr Larkin.

"We're doing it because Babcock & Brown is a very complex company," he said.

Under the new restructure, Babcock said it planned to cut its annual cost base by more than 50 per cent, or $150 million, by the end of 2010, and repay more than half of its $3.1 billion of debt by 2011. However, Mr Larkin declined to provide any details on the proposed asset sales, and how much Babcock hoped to reap from the sale of its real estate and aviation businesses.

Nor would he comment on the details of a teleconference held between Babcock and its 25 bankers on Tuesday night. "It's extremely confidential," he said.

It is believed Babcock could try to raise funds by selling management rights to several of its listed funds, such as the B&B Japan Property Trust, which has a portfolio valued at $1.6 billion.

"We're not prepared to talk about how we'll deal with individual assets," Mr Larkin said.

The problem for B&B is that it is trying to sell businesses in sectors badly hit by the credit crunch - real estate and aviation leasing.

Despite Mr Larkin expressing hope that B&B's sole remaining infrastructure business could generate enough cash flow to service the company's debts, investors appeared less confident.

Shares in B&B fell 6c to 25c after touching an all-time low of 22.5c in intra-day trade. The shares have fallen 99.3 per cent from their all-time high of $34.78 in June last year.

Compounding the gloom, Standard & Poor's issued a statement after the close of trade lowering its credit rating on B&B from BB- to CCC+, a rating given to companies at risk of going bankrupt. "We believe the company is likely to face significant challenges in selling its assets and businesses, and consequently reducing its debt at the corporate level," S&P said.

Another worry is an unsecured loan of $400 million Babcock gave to its debt-laden satellite B&B Power, which struggled to refinance more than $3 billion of debts. BBP is now in a race to sell assets to cut its debts.

"We think the assets in the Babcock & Brown Power portfolio are very good assets and we think we will recover that $400 million," Mr Larkin said.