Babcock & Brown Power in A$15m sale

The proceeds from the sale of gas supplier Alinta EATM could reach A$35m if certain other conditions are met. The Australian Stock Exchange-listed power investor has been selling assets in an effort to pay down debt but it has yet to decide how it will use the sale proceeds.

Babcock & Brown Power (BBP), an Australian Stock Exchange-listed fund that invests in power generation businesses, has agreed to sell all the assets of wholesale gas marketer Alinta EATM for A$15 million (EURO 7.8 million; $10.5 million).

Total proceeds related to the sale could rise to as much as A$35 million. BBP expects to receive a working capital adjustment of approximately A$10 million, depending on the timing of the financial close, and to achieve the release of an A$10 million cash-backed letter of credit.

Australian power company Aurora Energy is the purchaser. Financial close is expected in the first quarter of 2009.

Bairnsdale Power
Station, Victoria:
supplied by gas from Alinta EATM

BBP has yet to decide whether it will use to proceeds to repay interest, to repay principal or to fund internal working capital.

Recently, it used funds from the partial completion of the sale of its interests in the Kwinana power station and internal funds to repay A$71 million of an A$118 million debt facility. BBP expects the remaining A$47 million to be repaid from internal funds and ongoing asset sales.

As of October 2008, BBP had A$3.8 billion of project-level, fund-level and corporate-level debt. This includes approximately A$400 million that BBP owed to its manager, Babcock & Brown, which is also under pressure to decrease its debt burden.

Alinta EATM is a wholesale gas supplier in the Southeast Australian state of Victoria, where it sources gas principally from the Gippsland Basin. The company supplies wholesale energy market participants on Australia's eastern seaboard. It is unrelated to Alinta Limited, a Western Australian utility that BBP acquired as part of a Babcock & Brown-led consortium in 2007. That transaction was valued at US$12.5 billion.

BBP is also considering selling its interests in Alinta Limited as part of its effort to pay down debt.

BBP owns interests in 12 operating power stations across Australia & New Zealand. The fund has a 25-year external management agreement with Babcock & Brown effective as of October 2006, but it is seeking to have it terminated. Babcock & Brown also has an equity interest of approximately 10 percent in BBP.

It also previously disclosed a strategic review process that could result in the change of its ownership as a whole or the disposal of its individual assets. That process is expected to reach its conclusion by the end of the first quarter of 2009.