Babcock Infrastructure unveils A$1.8bn recap deal

The recapitalisation will see Brookfield invest up to A$712.5m in the company for a 40% stake in BBI, a 50% interest in the Dalrymple Bay Coal Terminal and 100% of PD Ports. The deal will add US$8bn to Brookfield's infrastructure AUM.

Babcock & Brown Infrastructure (BBI) has unveiled an A$1.8 billion (€1.1 billion; $1.6 billion) recapitalisation plan which will see Toronto-based Brookfield Asset Management own up to 40 percent of the company.

Sam Pollock, chief executive officer of Brookfield’s infrastructure group said in a statement that the deal will add approximately US$8 billion of assets under management to Brookfield's infrastructure portfolio.

As part of the transaction, Brookfield is to acquire BBI’s PD Ports business in its entirety and take a 50 percent stake in BBI’s Dalrymple Bay Coal Terminal in Queensland, Australia. Brookfield would make a cornerstone investment of between A$625 million to A$712.5 million to acquire 35 percent to 39.9 percent of the remainder of BBI’s structured business.

On top of the initial cornerstone investment, BBI is also to raise a further A$625 million through an institutional placement and A$250 million through a security purchase plan to existing shareholders. Both the institutional placement and the purchase plan will be fully underwritten by Credit Suisse and Macquarie Capital Advisers.

Upon completion of the recapitalisation BBI’s total debt will fall to A$3.76 billion, or 5.9x its forecasted earnings before interest, tax, depreciation and amortisation (EBITDA) for 2010. BBI has forecast its EBITDA for the full year 2010 to be around A$637 million.

Dalrymple Bay Coal
Terminal: Brookfield is
set to acquire a 50
percent interest

BBI needed to instigate the recapitalisation in order to reduce its high levels of debt. At the end of June the company had A$8.86 billion of total debt, A$3 billion of which was due in 2010 and 2011, including A$300 million in February next year. Following the transaction, BBI will fully repay its A$1.2 billion of corporate debt, as well as free-up liquidity and retain an A$300 million undrawn corporate facility. BBI has also extended its WestNet Rail debt facility by three years, which will now mature in 2014.

Last week BBI halted trading of its shares, saying it was continuing discussions with an undisclosed private equity firm. It previously rejected a rival proposal from a syndicate of hedge funds led by RBS, claiming the rival offer “does not fundamentally address the debt position” of the company and poses “considerable execution risks”.

BBI chairman David Hamill said the recapitalisation unveiled today is superior to all the alternatives considered, and was fair to the company’s security holders: “The proposed recapitalisation offers investors a secure, simple capital structure, internalised management and a renewed board with access to the capabilities of a strong cornerstone investor,” he said.

Following the completion of the transaction, BBI will be renamed Prime Infrastructure and will finalise its spin-off from parent group Babcock & Brown.

The recapitalisation still needs to be approved by BBI’s shareholders in mid-November. Should the recapitalisation plan fall through, Brookfield will still retain the right to buy PD Ports and a right of first refusal over the Dalrymple Bay Coal Terminal, according to the statement.