German breakthrough helps B&B in restructure

Sydney Morning Herald
Saturday 6/12/2008 Page: 43

THE disputed bank deposit that almost plunged Babcock and Brown into receivership has been replaced by a new lifeline of short term funding that will tide the embattled asset-management group over the next few months, it emerged yesterday. While B&B indicated in the rescue deal announced on Thursday that it had "come to an arrangement" with the German lender that had withheld access to the money, analysts suggested that the frozen sum has now been used to repay outstanding project debt. Access to the 71 million ($139 million) deposit held by Hypo-und Vereinsbank, a longterm backer of B&B, had been withheld after the group unveiled its most recent restructuring plan a fortnight ago that suggested its financial troubles were even worse than investors thought.

The row overshadowed the need to get the full support of B&B's 25-strong syndicate of international and domestic banks for the revamp, which included the loss of a further 850 jobs, cost savings of $150 million and an intention to cut its $3.1 billion of debt in half by 2011. That blueprint has, in effect, been dropped as a result of the new financing arrangement that B&B has agreed with its banks, although it will form the basis of yet another restructuring proposal that it has to be put to its lending syndicate by early January.

In return, the banks will advance another $150 million to allow B&B to complete certain wind farm developments in the US and then sell them to reduce part of its debt burden. B&B had intended to use some of the 71 million deposit for its working capital needs. But the German bank had expressed concern about money owed to it to develop B&B's European wind farms and froze access to the deposit as part of its case for repayment. B&B's initial aim was to repay Hypo-und Vereinsbank with the proceeds from the recent sale of its Enersis portfolio of wind generators in Portugal but the final sum fell short of what was needed.

According to Citigroup analysts, the 71 million has since gone to clear the project debt with Hypo which led to B&B asking for the additional $150 million from the remaining members of its banking syndicate to meet its other developmental cost needs. Meanwhile, B&B has been given some breathing space with a new "pay if you can" deal on debt interest repayments, including the new loan, as it begins work on its new business plan.

The banks will have until February 28 to sign up to the blueprint, which is likely to see them convert some of B&B's debt into shares in the company. B&B's shares yesterday shed almost all of the gains they made in the wake of Thursday's new deal, ending the session 13.5c down at 25.5c, as investors digested the prospect of the banks ending up owning a large slice of the business.