UPDATE 1-Babcock & Brown gets refinancing, suspends dividend

(Adds CEO quote, background)

SYDNEY, Dec 4 (Reuters) - Banks threw Australian investment firm Babcock & Brown Ltd (BNB.AX) a financial lifeline on Thursday, agreeing to refinance its debts, but shareholders face suspended dividend payments and a possible debt-for-equity swap.

The company, whose shares have fallen 99 percent since the beginning of the year, was in dispute with a bank over the release of a deposit and has been in talks with its banking syndicate on a restructure of its financing arrangements.

"We remain focused on reducing debt levels while managing the business to meet our obligations and preserving the value of our assets and funds management platform," said Babcock & Brown chief executive Michael Larkin in a statement.

"During this transition period there may be significant volatility in the earnings base of the business," he added.

Thursday's agreement included the suspension of all financial covenants under Babcock & Brown's two existing corporate facilities.

It also included a A$150 million ($97.4 million) funding facility to address Babcock's immediate funding needs, due for repayment on Dec. 31 next year. It will suspend the payment of dividends until the new short-term facility is paid off.

Babcock said it would work with its banking syndicate towards a long-term capital restructure of the group and a potential debt-for-equity swap.

Last month, Babcock & Brown put about half its asset base up for sale, and announced sweeping job cuts to bring its staff levels down to 600 in 2010 from 1,450 now.

Babcock plans to focus entirely on its infrastructure business, putting up for sale its remaining businesses of real estate, leasing and corporate and structured finance in the worst market environment for decades.

Analysts had expressed scepticism the group would be able to sell the assets as quick as the banks would want.

Trading in Babcock's shares has been suspended since Nov. 20, but will resume later on Thursday.

The collapse in its shares has taken the firm from one of Australia's biggest companies, worth around A$10 billion, to a small cap worth only around A$100 million. ($1=A$1.54) (Reporting by Mette Fraende; Editing by James Thornhill)