Tuesday, July 01, 2008

Financial Update on Babcock & Brown

Two weeks ago, I wrote of the financial issues Babcock & Brown was having with some of its creditors. Earlier in June, some of the company's creditors had asked for a review of $2.7 billion of loans, citing a provision that the B&B's market capitalization not fall below the value of the credit facility. As majority owner of Bluewater Wind, B&B's financial strength is of considerable interest to Delawareans. Reuters reports that B&B has resolved the matter with most of the creditors involved:
Babcock & Brown, an Australian investment firm hit by worries over its heavy debt last month, won a reprieve from its lenders, sending its shares up as much as 17 percent on Monday.
Two-thirds of Babcock & Brown's 25-member bank consortium agreed to drop a clause that gave lenders the power to review terms of a 2.8 billion Australian dollar, or $2.7 billion, corporate debt facility if Babcock's market value fell below 2.5 billion dollars.
The company's market capitalization fell below that level last month, sparking a major sell-off as investors feared creditors might invoke the review clause and force the firm to quickly repay the debt.
In return for dropping the review clause, Babcock & Brown agreed to prepay some of the debt and pay a higher interest rate, 50 basis points more, on the three-year debt facility. A basis point is one-hundredth of a percentage point.
Babcock & Brown will pay an estimated $10 million a year over three years to remove the provision from the loans. Investors seem to think that this is a reasonable price to pay for greater certainty. B&B's share price has recovered about a third of its lost value since the agreement was announced. B&B hasn't slowed the pace of its dealmaking this week. Reuters reports that the Italian energy firm Saras bought a 30 percent share in four wind farms owned by B&B, which should help the company's balance sheet. The Financial Times reports that Babcock & Brown has more work to do to clean up its balance sheet and those of some of its underperforming funds:
As part of Monday’s deal B&B also agreed to reduce its debt by A$400m once various asset sales currently underway are completed. These include its European wind farms assets which could fetch up to US$3bn in a deal Babcock hopes to close in the third quarter. B&B is planning to appoint up to three investment banks to advise on its specialist funds in a bid to close the gap between their net asset value and their trading price.
The wind fund is not one of those underperforming funds. The Australian Herald Sun reports that B&B's wind fund is feeling flush enough to go shopping for assets:
Babcock & Brown Wind Partners has bought four wind farms in Germany for an undisclosed sum with the purchases funded completely from cash.

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