UPDATE 2-Banks throw Babcock & Brown a lifeline

(Adds analyst quote, share price)

SYDNEY, Dec 4 (Reuters) - Australian investment firm Babcock & Brown Ltd BNB.AX won a financial lifeline on Thursday, persuading creditors to refinance its debt and breathing life back into its critically ill share price.

Babcock shareholders have lost almost everything this year, leaving the former blue-chip prey to speculative investors who sent the stock soaring, despite also learning on Thursday of a dividend suspension and a possible debt-for-equity swap.

Babcock, a company once worth around $6.5 billion, has lost 99 percent of its value this year, reduced to a speculative penny stock by the global credit crunch which sparked panic over a debt-funded business spanning rail, toll roads and real estate.

“Potentially, there is something here that suggests that maybe, just maybe, Babcock has a life,” said Angus Gluskie, portfolio manager at White Funds Management.

Babcock’s shares came out of a two-week suspension after the news and more than doubled in value to A$0.48 at 0120 GMT. They peaked last year at almost A$35.

Uncertainty over a possible debt-for-equity swap made it hard to say where the shares would settle.

“It’s very hard to judge where the shares will ultimately be, even if the company survives, whether the shares will be worth 10 cents or a dollar,” Gluskie said.


Babcock has been negotiating for months with its main bankers over some of the covenants attached to about A$3 billion ($1.94 billion) in debt maturing by 2011, but the situation became critical last month when a smaller creditor demanded repayment.

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

It also included a A$150 million facility to meet Babcock’s immediate funding needs, due for repayment on Dec. 31 next year. It will suspend dividends until the new facility is paid off.

Babcock said it would work with its banks towards a long-term capital restructure, including a possible debt-for-equity swap.

“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,” CEO Michael Larkin said in a statement.

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

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 at the time.

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 have voiced doubts that the group can sell assets as quickly as the banks want, but they said Thursday’s deal would buy the banks’ more time to see if credit markets would improve.

“If we see credit markets improve, we are going to see more asset transactions out there,” Gluskie said.

Trading in Babcock’s shares had been suspended since Nov. 20. ($1=A$1.54) (Editing by Mark Bendeich & Dhara Ranasinghe)