Babcock Gets Reprieve From Lenders on Debt Review

Australian investment firm Babcock & Brown said on Monday its lenders had agreed to drop a market capitalization-linked review clause to its debt facility, and said it would pre-pay some of the debt.

Earlier this month, Babcock & Brown's market value fell below A$2.5 billion (US$2.4 billion), a level set by lenders for a possible review of the terms of a three-year A$2.8 billion debt facility.

In return for the removal of the market capitalization clause, Babcock & Brown agreed to raise the pricing on its debt facility by 50 basis points.

Babcock, which manages about A$72 billion in global infrastructure assets, said it would pre-pay about A$400 million of its debt using the proceeds from previously announced asset sales once the transactions are closed.

"The decision by the banks underscores the strength of our business and the banks commitment to Babcock & Brown," Phil Green, Chief Executive of Babcock & Brown said. The formal documentation with the banking syndicate shortly expected shortly, the Babcock statement said.

Babcock, like bigger rival Macquarie Group, 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 heavily on debt to fund the purchase of the assets and to continue to grow revenues, but the rising cost of credit amid the global credit squeeze has made it difficult for companies such as Babcock to raise money.

Babcock shares ended Friday at A$6.36, giving it a market value of A$2.12 billion. The company was valued at A$11.6 billion in June 2007.

Several funds managed by Babcock & Brown have seen their share price falling sharply after they cut distribution guidance due to rising cost of credit. In the past, distributions were funded out of borrowed money.

Babcock & Brown said it was looking to appoint investment banks to provide external advice to the company.

The firm is the latest Australian company to fall victim to the global credit crunch, following the high profile collapse of Centro Properties Group and Allo Finance Group.