Babcock & Brown (BNB) in Safe Zone

Submitted by Craig Strzelecki on 1 July, 2008 - 10:14

A consortium of 25 banks has agreed to continue providing $2.8 billion loan to Babcock & Brown. The company shall completely overhaul its business model along with reducing its dependence on balance sheet. The company shall also avoid any fire sales in coming times.

Babcock and Brown had been facing a tough situation since past few weeks and its fate would have landed in the hands of its lenders - Allco Finance and Centro Properties, if the banks had denied continuing the loan facility. The company has finally managed to convince the banks that there is nothing fundamentally wrong with its assets, business model or fund management business. Currently, only two-third of the banks that owe $2 billion have agreed has signed up the agreement which puts B&B to make an announcement. Rest of the banks are likely to do so in next few days.

The deal was agreed on the terms that Babcock and Brown shall pay an additional $10 million annual interest and shall also require paying down $400 million immediately to the banks that would be generated from its immediate asset sales. Another important feature was that the removal of clause which stipulated that a possible bank review would be in order if the share prices fell below $7.50 a share. This clause had nearly pushed the company to the edge of oblivion in past few weeks. The value of company’s shares had nearly halved since March this year, when the share was priced at $15. However, neither the banks nor the company had imagined that the levels of $7.50 would breach so suddenly.

Babcock and Brown chief commented on the crisis and vowed that there would be assets sales and the company shall put an end to spinning off satellite funds. It shall also resurrect its tarnished image in the infrastructure market. However, he did not comment on whether the company shall raise any equity. several private investor groups like Kholberg Kravis Roberts had been keeping a close watch on the progress of bank review in order to buy out or grab stakes in the group. The market received a reprieve from the news and it showed a direct impact on the share prices. BNB shares had gained 18 percent or $1.14 to close at $7.50.