Babcock & Brown in Deposit Dispute With Bankers

Post by Sharat on November 22, 2008 · Under Company News, Equities, investments · 1 Comment 

Babcock & Brown, the troubled Australian investment advisory firm, said that it was involved in a dispute with one of its bankers, over the release of a deposit which it views as a “material amount”

The company has had serious financing issues since it breached a covenant in June. The firm requested a halt in the trading of its scrip, so that the issue of the dispute over the deposit which involves what they regard as a material amount of money can be resolved.

Babcock & Brown are currently negotiating with 25 financing banks over A$3.1 billion in debts, and the investment firm would not confirm whether the dispute was with one of those financing banks. It would be hard to see how it could not be one of those creditors.

The Money Leboswki, Where is it??

Babcock yesterday said that it would be “difficult” for the firm to comply with provisions laid in its debt agreements. The choice of language was important,  last week they suggested that compliance was “uncertain”.

Babcock in an effort to appease impatient and increasingly nervous bankers and investors revealed a major restructuring plan for its operations on Thursday, which would turn the company into an pure infrastructure investor. The firm plans on cutting 850 jobs and selling off two non-core divisions. Infrastructure is a popular theme for investors because it is thought that the investments yield results which have dependable earnings streams which produce solid valuations.

The announcement did little for the company’s already battered share price. Investors and bankers seemed unimpressed. Merrill Lynch removed its ratings coverage off the company shares and warned that substantial write-downs could impact second half pre-tax profit which would also lead to a covenant violation.

For Whom The Bell Tolls

Merrill analyst Kieren Chidgey tolled the bell for Babcock saying.”Too many question marks remain over asset sales – timing and value – revenue impacts and interest costs,” “While value may exist, with more than $7.5 billion of assets to be sold into a weak market, risks are immense and fundamental assessment of value is near impossible, supporting our ‘no rating.”

Babcock has been under pressure to sell assets and cut debt since banks waived a $750 million market capitalisation covenant earlier this year. The group’s current share price indicates a market cap of just $94 million.

Standard & Poor’s also weighed in yesterday, saying a covenant breach could prompt the banks to accelerate payments or force a distressed debt exchange.

Babcock’s real estate and operating leasing units are now on the block, yet the firm didn’t give a timetable for the sales, saying non-core businesses would be sold “as opportunities arise.”
The firm hopes to repay half of the $3.1 billion that it owes by 2011, but without substantial asset sales, it doesn’t seem feasible.

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Comments

One Response to “Babcock & Brown in Deposit Dispute With Bankers”

  1. The Dude on November 24th, 2008 11:49 am

    Perhaps these men are nihilists, in which case there’s nothing to be afraid of.

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