Tuesday, June 17, 2008

Is Babcock & Brown Financially Sound?

The News Journal doesn't have much new to report regarding the wind power negotiations, except that they are close, but then there isn't much more to report. I've been told that there are some particulars that haven't been settled. This thing could go to the final week.
In the meanwhile, I've been getting questions about the problems Bluewater's parent company Babcock & Brown have been having with its creditors. Last week, some of the company's creditors evoked a clause in a debt facility (these are too fancy to be called loans) that allowed the creditors to review the terms of the loan if the company's share price dropped below a trigger price.
How serious is this problem? Could it sink the company's efforts to close the deal with Delmarva Power?
I've spent the last several days reviewing the company's financial statements and corporate structure. Babcock & Brown is set up as a parent company with a series of specialized funds, including Babcock & Brown Wind Partners, which is separately listed on the Australian Stock Exchange. Both the parent company and the Wind Partners are expected to post profits for the fiscal year ending June 30.
It's probably worth noting that the status of its debt facility is "review" which is conducted over a four month period. B&B has started talking to the banks involved and is continuing to make payments on the debt facility. B&B is looking at asset sales as a way to reduce the debt on its balance sheet. This process could continue past the question of dealing with the particular debt facility under review. The question is not whether B&B assets are sound, but how those assets are financed, as an energy analyst told the News Journal yesterday:
"I would not worry about the specific financial troubles of the parent organization right now," said Nathaniel Bullard, a Washington-based senior analyst with New Energy Finance of London. "There's plenty of time for any financial issues with Babcock, the parent company, to be ironed out."
Creditors seem to be getting anxious about the company's debt, not its overall profitability. The company is fielding offers for some of its wind power assets, according to Bloomberg. The B&B Wind Partners balance sheet looks strong, with 1,193 wind turbines on three continents producing nearly 5,000 GWH as of June 30, 2007.
Babcock & Brown is a sound business with productive assets. Management seems to recognize it needs to reduce the company's debt load and is proceeding with plans to do so. I see no reason why the company shouldn't be able to finance the construction and operation of the Bluewater Wind project.
Update: I'm going on WDEL, 1150 AM, with Allan Loudell at 12:15 to discuss the latest on the wind power talks.

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