As Babcock & Brown carries on its negotiations with Germany's HypoVereinsbank over what the company calls “a deposit of material amount” that has been frozen, the impact of the liquidity crunch for its 12 listed satellite funds is likely to be minimal, according to a person familiar with the matter.
“It really is business as usual for those funds,” the person said.
Babcock issued a request Thursday for a trading halt of its shares on the Australian Stock Exchange while the company works to resolve a dispute with one of its lenders, German UniCredit subsidiary HypoVereinsbank. The bank has frozen Babcock & Brown's deposits, reportedly more than A$100 million (€50 million; $63 million), in fear that it won’t be paid back its outstanding loans.
HypoVereinsbank is part of a syndicate of 25 banks that provided Babcock & Brown with a A$2.8 billion three year loan facility, which in June was renegotiated to remove a market capitalisation covenant in exchange for a higher lending margin.
“Whether or not Babcock will survive this crisis depends on the banks,” John Heagerty, an analyst for ABN AMRO who covers Babcock & Brown previously told InfrastructureInvestor.
In the event that Babcock & Brown should default on its total A$3.1 billion corporate debt or be taken into receivership or administration, the listed entities can simply internalise their management agreements with the Sydney based infrastructure specialist, the source said.
Recently, Babcock & Brown Capital announced plans to bring its management in-house in exchange for a payment of A$32.5 million to Babcock & Brown.
Alternatively, the satellite funds may also seek a third party buyer for the management agreements, as Babcock & Brown Communities already has.
As of October, Babcock & Brown had A$36.7 billion of infrastructure assets under management. Under the firm’s amended restructuring plan announced Tuesday, it will retain its management agreements with the funds that manage those assets.
This includes listed funds Babcock & Brown Infrastructure, Babcock & Brown Wind Partners, Babcock & Brown Power and Babcock & Brown Public Partnerships as well as the unlisted €2.2 billion Babcock & Brown European Infrastructure Fund and the unlisted Babcock & Brown Infrastructure Fund North America.
A future unlisted infrastructure fund planned for Asia will also continue under Babcock & Brown’s operations, while all other satellite funds will be divested.
As employees of Babcock & Brown’s satellite funds also sit on its payroll, these divestitures will primarily account for the company’s planned decrease in headcount from 1,450 to 600 in the next two years, the person said.
“When we restructure, we will have just infrastructure and support staff,” the person said.