Babcock & Brown Power (BBP) shares closed almost 6% higher yesterday at $1.355 after the company said it had reached contractual close on the much anticipated $2.7 billion debt refinancing.
It was one of two favourable deals yesterday for the BNB empire.
Despite this ‘good’ news, Babcock and Brown (BNB) shares hit a three year low closing at $10.61.
Besides BBP’s news, securities in the infrastructure fund, Babcock and Brown Infrastructure (BBI), jumped 7.5c, or 7.33%, to $1.095 after it said it had refinanced a $518 million debt facility used to purchase Australian energy transmission and distribution businesses, including some ex-Alinta assets not held by BBP. The securities ended up 5.8% at $1.08.
BBI said that commitments for the new banking facility were in excess of those sought, resulting in a modest increase in margin to the fund’s existing corporate debt facility. The deal meant BBI now had no material single refinancing requirements until fiscal 2010. The new facility will have a weighted average term of three years and will be provided by seven leading banks.
Now that BBI seems to be out of the way as an issue, BBP has to be sorted out. Yesterday’s bank debt deal starts that process.
The debt refinancing and other money needs had made investors nervous about the outlook for BBP, forcing the sponsor and manager, Babcock and Brown to issue comforting words of support for its satellite.
BNB chief executive Phil Green told last Friday’s AGM that it expected to provide BBP with about $200 million in bridging finance. He also confirmed that a number of parties had expressed an interest in BBP’s assets
Those words were uttered again yesterday:
"As previously indicated Babcock & Brown remains committed to BBP and will provide support for the additional funding requirements on a short term basis. This support will be provided on commercial arms length terms," the statement said.
That means the investment bank, which has been sold off in recent days as well, still stands behind BBP and will continue to do so until it gets the $360 million finance package bedded down.
BBP though has to raise around $400 million from the sale of excess (above the $2.7 billion of assets secured by the new debt facility). In the current straitened financial climate, that could take some time.
BBP said the banks who have underwritten the $2.7 billion Babcock and Brown Power Finance facility were :
1. Mandated Lead Arrangers, Underwriters and Bookrunners being ANZ, BNP Paribas, CBA, Dexia, nabCapital, Natixis, SG, UniCredit Group and WestLB; and
2. Suncorp Metway as Mandated Lead Arranger.
3. In addition, two further banks, BOS International and Mizuho Corporate Bank Ltd have obtained approval to participate in the BBPF facility.
4. Following close of the BBPF refinancing BBP’s effective total interest rate on the combined BBPF and BBPH debt is expected to be approximately 8.5%.
The company said that the deal will allow it to turn its attention to the refinancing of a $360 million corporate debt facility due to be completed by August 31. BBP also plans to sell assets not secured under the $2.7 billion facility.
"To address the previously disclosed capital expenditure requirements and to enhance BBP’s capital structure BBP has implemented an asset sale programme from assets not secured under the $2.7 billion facility.
"There are a number of quality assets that are available to be sold and no final decisions have been reached. BBP believes that the proceeds from the sale of selected assets will meet our previously disclosed funding requirements and in parallel is also likely to reduce the amount of any BBPH corporate debt facility."
BBP said UBS has been appointed to advise on the asset sale process.
The involvement in the BBPF refinancing of WestLB, a financially challenged German ‘Landesbank" is interesting because it is widely believed to have been the creditor dragging its heels in talks last month and last week to give struggling property and shopping centre group, Centro, an extension of time.
WestLB is being bailed out in Germany after losses on poor corporate lending, poor trading decisions and some investments in subprime mortgages and related derivatives.
