Debt Problems
Babcock shares fell 27% on 12 June 2008 due to fears about the debt levels of it and its various satellite funds. The plunge triggered a debt covenant when its market capitalisation fell below A$2.5 billion (roughly equivalent to a share price of $7.50), allowing its lenders to review the company's financing arrangements. Some of the satellite funds, which have suffered similar falls in share price, have responded by cutting their dividends and selling assets in order to repay debt.
On 19 August 2008, the company's stock price was down 23.5% due to speculation about being forced to sell assets to cover bad debts, and caused the company to place itself into a trading halt and receive a price query from the Australian Stock Exchange. The company then announced board and management changes, including the stepping down of CEO Phil Green, and noting a sharp 30% drop in profit and the announcement of no dividends. On 21 August 2008, its share price collapsed a further 36% to end at $2.22, a record low.
In September the company commenced selling some of its non-core businesses and assets and reducing its workforce in order to streamline its operations. On 4 December it was announced that Babcock and Brown had been granted a $150 million loan from its 25 bankers and had the covenants on its outstanding debt removed, conditional on production of a satisfactory revised business plan. Pending resolution, a trading halt was put in place on 8 January. A statement on 23 January 2009 announced "the Board believes that in the current market environment and based on continuing discussions with the banking syndicate there will be no value for equity holders under the revised business plan and balance sheet restructure of Babcock & Brown International Pty Ltd and negligible or no value for holders of the Company's subordinated notes." The banking syndicate is dominated by European institutions, with Australia's four major banks holding aggregate exposure estimated at about $800 million.
The company went into voluntary administration in March 2009 after unsecured bondholders voted against a debt restructuring plan that would value their claims at 0.1 cents in the dollar. The rejection rendered the company insolvent because it could not meet interest payments.
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