news report

B&B's future hangs on disputed $70m deposit
AdvertisementEmail Print Normal font Large font AdvertisementDanny John
November 22, 2008

A $70 MILLION bank deposit stands between Babcock & Brown and the possibility of financial oblivion as early as next week, it emerged yesterday.

That is the amount of money - said by B&B to be a "material sum" - to which a German bank, Bayerische Hypo-und Vereinsbank, is refusing to give the debt-laden investment group access, in a dispute that threatens its corporate life.

Talks between the bank - which is understood to be seeking financial security for an outstanding loan it has with B&B - and the Sydney-based asset management group were due to continue over the weekend to try to resolve the row and stop it further fragmenting the company's banking syndicate.

While B&B's senior lenders are prepared to continue supporting the troubled group, there were fears yesterday that other members of the 25-strong syndicate would move to protect their financial positions and call in receivers.

B&B's directors have taken legal advice over the company's chances of unlocking the disputed deposit but were also weighing up their responsibilities yesterday if the problem cannot be resolved and it triggers another round of cash-tightening measures that further affects its day-to-day liquidity.

Under that scenario, the board could be forced to call in administrators in light of a growing prospect of insolvency.

The decision by HypoVereinsbank - as it is known - took B&B and the banking syndicate by surprise as the German lender has been one of the group's biggest financial supporters since the early 2000s.

The bank held a 12 per cent shareholding in B&B on its flotation on the ASX in September 2004 and agreed to sell down part of its stake in the forthcoming years to boost the group's range of investors. It also became a key member of its banking syndicate as B&B took on more debt to expand its business.

B&B yesterday refused to comment on the deteriorating relations between the two that has already undermined the group's latest survival plan, which was aimed at cutting costs by $150 million, sacking 850 staff and selling off even more assets to reduce its $3.1 billion debt burden by half by 2011.

But its situation became bleaker during the day, when the credit rating agency Standard & Poor's downgraded the status of B&B's debt for the second time in 12 days, this time to "CC", and at a level just above the mark that would indicate a default on a loan repayment or a bankruptcy filing.

S&P has also maintained its negative credit watch stance on the company, saying yesterday that its rating could be cut to a "D" if B&B's worsening liquidity problems result in it defaulting on its debt arrangements.

"We believe the dispute [over the bank deposit] heightens the challenges faced by the company in retaining the confidence of its main banking syndicate," S&P's credit analyst, Sharad Jain, said.