Babcock Says Not in Breach Debt of Covenants

Babcock & Brown, an Australian investment firm which lost half its value last week on debt concerns, said on Monday that a market capitalization clause in its debt facility did not constitute breach of covenant.

Last week, Babcock's market capitalization fell below A$2.5 billion (US$2.4 billion), a level below which lenders have the option of reviewing the terms of its three-year A$2.8 billion debt facility.

Babcock & Brown said in a statement that the banks have not yet made a decision on whether such a review action is appropriate. A Babcock spokeswoman said meetings with lenders would start on Monday.

Babcock & Brown shares climbed as high as 10 percent on Monday, valuing the company at A$1.78 billion, though still a far cry from its life-high of A$34.78 reached in June last year.

Babcock manages about A$72 billion in global infrastructure assets. It buys assets such as ports and power utilities and then bundles them into listed and unlisted funds from which it earns management fees.

The business model relies on debt to fund the purchase of the assets and to continue to grow revenues, but the rising cost of credit has made it difficult for companies such as Babcock to raise loans.

Australia's top investment bank Macquarie Group operates a similar model and saw its share price get caught up in the backdraft from Babcock's woes last week, hitting three-month lows. Macquarie shares were down almost 1 percent.

Babcock said it plans to appoint independent chairmen to the boards of four Australian listed funds -- Babcock & Brown Infrastructure, Babcock & Brown Power, Babcock & Brown Wind Partners and Babcock & Brown Residential Land Partners -- as part of a strategic review.

Babcock & Brown also said it would receive the first round of indicative offers for its European wind energy assets this week with the sale expected to be finalized in the third quarter of 2008.