Banks save Babcock with loan facility

Loan of $150 million

Vishal Teckchandani

Fri 05 Dec 2008

Investment bank Babcock and Brown has avoided bankruptcy after it received a $150 million loan from its banking syndicate.

The loan will help Babcock fund its business through to December 31, 2009 and will be used for North American infrastructure development and other planned cashflows, the company said.

A condition of the loan is that Babcock cannot pay dividends on its ordinary shares until the loan is repaid and while there is outstanding accrued interest on the subordinated notes. The loan is also to be repaid by December 31, 2009.

The group will also suspend all financial covenants under its existing corporate facilities.

Babcock said it has a deadline of February 28, 2009 to propose a longer-term capital restructure, which is expected to include a debt-for-equity swap acceptable to its banking syndicate.

The agreement provides that the capital restructure be implemented by April 30, 2009.

"We remain focused on reducing debt levels, while managing the business to meet our obligations and preserve the value of our assets and funds management platform," Babcock chief executive Michael Larkin said.

However, as the business unloads debt there may be significant earnings volatility, he said.

Babcock said in mid-November it planned to cut its headcount from the current 1450 employees to 600 by 2010.

Shares in the bank rallied 56 per cent or 14 cents to 39 cents in trading yesterday. They were worth $28.47 a year ago.