Babcock & Brown Financing Deal Stiffs Short-Sellers

Vivian Wai-yin Kwok, 06.30.08, 5:15 AM ET

HONG KONG -

Having won a reprieve from its creditors, Australian investment firm Babcock & Brown, whose shares surged nearly 18% Monday, is keeping the short-sellers off its back.

Babcock & Brown (other-otc: BBNLF - news - people ) said Monday that its financiers, a 25-member bank consortium, agreed to drop a clause stating that it could review the terms of its 2.8 billion Australian dollar ($2.7 billion) corporate debt facility if Babcock & Brown's market capitalization were to fall below 2.5 billion Australian dollars ($2.4 billion).


Babcock & Brown had held several urgent meetings with its bankers over the past two weeks, after its market capitalization fell below the trigger point earlier this month.

The lenders exacted a price for agreeing to remove the binding review clause, charging Babcock & Brown more for financing. The investment firm agreed to a change of 50 basis points, to a 200-point margin, in its cost of capital. The hike in the finance charge could be revised down if Babcock & Brown's previous S&P rating of BBB were reinstated.

In return for having the review clause dropped, Babcock & Brown, which manages about 72.0 billion Australian dollars ($69.3 billion) in infrastructure assets worldwide, will also prepay approximately 400 million Australian dollars ($384.9 million) of the corporate debt facility from previously announced asset sales, once those transactions have closed.

Phil Green, CEO of Babcock & Brown, said, "We are pleased that our banking syndicate was able to move quickly not only to waive their right to a review but also to remove this clause altogether from our facilities.… The decision by the banks underscores the strength of our business and the banks commitment to Babcock & Brown."

The investment firm said the higher interest rate would cost it an extra 10 million Australian dollars ($9.6 million) over the three years if the facility is fully drawn upon, but it did not expect that the new arrangement would have a material impact on its overall cost of capital.

Having escaped, at least for the time being, its debt crisis, Babcock & Brown will now focus on further reducing its level of gearing, primarily through sales of noncore assets. As part of these efforts, Green confirmed that the company is looking for international investment banks to advise it.

Shares of Babcock & Brown swelled by 1.14 Australian dollars ($1.10), or 17.9%, to 7.50 Australian dollars ($7.24), in Monday trading.

The sharp rise in the stock backfired on short-sellers, who used shares borrowed from various fund managers to drive down the share price of Babcock & Brown by more than one-quarter of their value earlier this month. Speculators ambushed the firm after its subsidiary Babcock & Brown Power (other-otc: BCCBF - news - people ) requested a trading halt in early June. The energy retailing firm said it needed time to assess the business implications of the disruption of its gas supply to customers caused by a June 3 explosion at Apache Corp. (nyse: APA - news - people )'s Varanus Island processing plant in Western Australia. (See "Babcock & Brown In Tight Spot As Short-Sellers Circle")

Taken From : http://www.forbes.com