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Babcock reaches agreement with banking syndicate

The deal allows the troubled infrastructure fund manager to proceed with a sell down of its assets over a two to three year period as it begins to repay the A$3.2bn it owes to a syndicate of 25 banks on a 'pay if you can' basis.

Babcock & Brown has agreed to a deal with its syndicate of 25 lenders to a debt restructuring deal, but its future as a listed infrastructure investor and fund manager remains unclear.

The firm said on Friday night that it agreed to restructure its more than A$3.2 billion (€1.7 billion; €2.1 billion) of debt owed to the banks on a “pay if you can” basis with regards to interest and restructuring fees.

Approximately A$1.19 billion of the debt will be payable in various tranches before 30 April 2011, while the remaining A$2.12 billion will be due mid-2018. Originally, all the debt matured by 2011.

No interest will accrue on the A$2.12 billion, but it will accrue a restructuring fee of 20 percent per year, which will be payable “only to the extent of the realisation of assets”, the company said.

Aside from the bank facility, Babcock also owes about A$600 million in subordinated notes and has its shares listed on the Australian stock exchange, which have been in a trading halt since 8 January. It will not be able to resume making payments on the subordinated notes or pay interest on its shares, which will remain suspended from trading.

“The Board and Management deeply regret the loss of shareholder and subordinated note holder value and acknowledge the financial hardship this has caused investors,” Babcock said in a statement.

At its height a $6.5 billion asset manager with growing businesses in infrastructure, real estate, aircraft leasing and investment banking, the firm has seen its stock market value tumble to less than A$80 million in the aftermath of the global credit crisis.

The agreement to implement the asset sale and reduce debt gives the company room to avoid a potentially lethal fire-sale of its investments in the near term. However, it is still unclear whether the firm will emerge from its restructuring or whether it will meet the fate of Allco Finance Group, another Australian finance group that collapsed last year under the weight of A$1.1 billion in debt.