You could park your Beamer horizontally in the Babcock & Brown lots beneath Chifley Plaza these days. In the Babcock eyrie on level 23 the grim reality has descended.
It's salvage time.
In a high-stakes game of chicken Munich-based Hypovereinsbank had moved first, locking down $150 million in a B&B account early yesterday to protect its position for the seemingly inevitable wind-up.
The Germans have put the acid on the other 24 banks in the syndicate: take us out of our position and we'll release the capital. Otherwise, we'll hang onto the cash to secure our loan exposure.
Now the others - which include ANZ, Westpac, NAB and Commonwealth and Suncorp - face an unenviable dilemma.
Do we throw good money after bad? Security is paramount in the event of a wind-up.
Besides the $3.1 billion senior secured facility, the bank exposure is in the billions via assorted notes and other unsecured loans - and that's before we get to the satellites.
It should be kept in mind that the satellites, despite some overlapping shareholdings, are not subject to the impending receivership of the headstock.
Game over
Barring a back-down from the Germans and a miraculous agreement between the myriad parties to commit to further funding, it's game over.
The Babcock executive was bunkered down with bankers, lawyers and its insolvency specialists this morning.
Rear-end covering is the order of the day, that is, taking advice on exposure to insolvent trading claims and the traumatic process of appointing administrators.
The way these things usually transpire, directors appoint a voluntary administrator and the banks appoint their own receiver shortly afterwards.
The sheer speed of the demise of B&B is quite breathtaking, and serves as a reminder of what how quickly the confidence game of the asset-recycler can unravel.
It was only in March this year that former CEO Phil Green was doggedly proclaiming a $750 million net profit forecast in the current year.
After handing down a 58% increase in earnings to $407 million for the prior year B&B shares soared as high as $16.80 on the heels of the profit announcement in March. It had scaled $34.63 in June the year before.
The bonus pool last year was $573 million, divvied up 1,200 ways with the biggest cheques naturally plopping into the pockets of Green and a handful of top deal-doers.
When B&B shares began to tank a few weeks later amid fears of a cash-squeeze and an enveloping bear market Green and Co. strapped on another $450 million in debt and tapped the ''Friends of Babcock'' for a further $220 million in equity.
Deutsche also tipped in some cash in a deal which seemed lavish at the time, and foolhardy later.
In last year's result, fee income had been $952 million, asset sales $776 million and there was $100 million from upwards revaluation of the property portfolio even as global property markets were cratering.
Did executives fill up before the implosion?
Buried in the announcement details following the result was a note showing Babcock would arrange for the final tranche of executive shares that came out of escrow after the float four years prior to be used to provide the scrip for employee bonuses - that is, Phil Green and other top executives had effectively sold their shares to their employees.
Deutsche demands
The new investors in Babcock were, in one sense, dumping their capital into the hands of a few senior executives. As the rot was setting, in Deutsche demanded a better deal so Babcock reduced the number of options given to the bank by 50% in return for paying 50% of a normal establishment fee.
Put another way, Deutsche did not care to get its options at $23 a share when the price had tanked to $13, so Babcock had cancelled half of them and given the bank half of the original fee in cash.
In the inevitable recriminations which will follow, all these and other deals will be pored over by banks, creditors and lawyers to work out whether any of the transactions in the dying days could be clawed back. It will be an awful mess, but one dwarfed by the real human cost - job losses.
Tentacles
Apart from those at the epicentre of the B&B crisis the problem with this type of market creature is that its tentacles extend in so many directions, both by geography and industry - even into government via the many PPPs struck during the halcyon days.
What, for instance, are the implications for GPT which is trying to dig itself out of a leveraged hole through asset sales? September quarter book value on the GPT/B&B joint venture was $7.2 billion.
The portfolio is geared to 71% with 6% of the $5.1 billion in debt due to mature in the next 12 months. GPT has given guidance that asset values may decline 5%-10% by the end of next month which could lead to its LVRs (loan-to-valuation ratio) being tested.
Realistically, the outlook for any kind of asset sale in the current global climate of fear is not good.
Wachovia, a US bank somewhat in strife itself, has already tried to recover lending to the JV. The knock-on effects of the credit crisis are everywhere.
http://business.theage.com.au/business/germans-blitz-babcock-20081121-6deq.html?page=2
BNB
babcock & brown limited
