Babcock wins reprieve, but note-holders pushed back in queue

New Zealand and Australian holders of Babcock & Brown subordinated notes will miss out on interest payments under a last-minute deal the troubled investment firm struck with bankers yesterday.

Friday, December 5th 2008, 2:30AM

by David Chaplin

Babcock & Brown, which is listed on the ASX and NZX, has been fending off bankers for months after its highly-leveraged business model was slammed by the global credit crisis.

The group has been hiving off assets to meet debt repayments but was on the verge of receivership until the new agreement was reached on Thursday.

In a statement released yesterday, Babcock & Brown said it had secured a $150 million short-term loan, payable on December 31, 2009, to “address the immediate funding requirements of the business” and restructure the group over the longer term.

Interest on the new loan and the firm’s two existing debt facilities have been converted to a ‘pay if you can’ basis, the Babcock statement said.

However, payment of the renegotiated loan will come ahead of New Zealand and Australian note-holders.

“Under the terms of the new facility, interest on Babcock & Brown’s Australian and New Zealand subordinated notes will not be able to be paid until such time as the new facility is repaid,” the Babcock statement said. “Interest on the Australian notes was last paid on 17 November 2008 and the next payment is not due until 15 May 2009. Interest on the New Zealand notes was last paid on 15 September 2008 and the next payment is not due until the 15 March 2009.”

The group would present a repayment plan to its bankers by January 9 next year.

Babcock & Brown also suspended dividend payments until a capital restructure is complete. In its statement Babcock & Brown said that would probably include a debt for equity swap with the banks.

The group owes more than $3 billion.

In its first trading day since being suspended on November 20, Babcock & Brown shares rose almost 60%, closing at A39 cents. At the beginning of 2008, Babcock & Brown shares were trading close to A$28.

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