Babcock & Brown - Organizational Structure

Organizational Structure

The investment firm latterly regarded its three business functions as financial advisory, principal investment on its own account, and funds management. It was a global business with 33% of its revenues coming from the United States, 31% from Australia, and 36% from Europe.

In 2005 its real estate group generated 36% of the company's net revenue. This division made investments on behalf of the company itself, and also of property-focused managed funds that it had organised. It had considerable success in property investments in Japan and Germany.

In infrastructure and project finance, an area in which Macquarie Bank is probably best known in Australia, emerged as a significant investor in a range of power, transport, water and public-private partnerships (PPPs). Starting out in England with PPP projects, this part of B&B's business generated 24% of the company's net revenue. In 2004 it established Prime Infrastructure, an ASX listed infrastructure fund containing coal distribution and related assets.

It also had an operating leasing business (Babcock & Brown Aircraft Management), listed in NY under the ticker symbol FLY, which generated 24% of net revenue and managed around 300 leased commercial jets for airline clients, in a portfolio worth approximately US$8.1 billion on 1 June 2008, one of the largest portfolios of commercial jets in the world. As of March 2009 FLY did not appear to have been materially affected by the problems at B&B . Babcock and Brown Air changed its name to FLY Leasing in February 2010. The senior management of FLY Leasing's manager (Babcock and Brown Aircraft Management) completed a MBO of Babcock and Brown's aircraft leasing business in April 2010. The company was renamed BBAM LLC and continues to manage a portfolio of over 450 commercial aircraft (including the 107 aircraft owned by FLY Leasing).

B&B's "bread and butter" business was its role as an adviser in structured finance, including leases, debt placement for large leases, hedging, securitisation for businesses looking to lease equipment essential to their business in the most tax-effective and low cost way possible. In addition to its operating leasing business which actually finances such equipment, B&B was one of the world's leading advisers in that space as well, putting it in a strong market position. It was considered the market leader in the United States and the United Kingdom in this area. The structured finance advisory business generated 23% of the company's net revenue.

The company had a highly successful listing on the Australian Stock Exchange in 2004 where it raised over $550 million in new capital.

Subsequently though the company became a high-profile victim of the credit crunch, suffering the inevitable consequence of a balance sheet stuffed with long-term illiquid assets such as real estate, shareholdings in related businesses, private equity transactions all financed by short term debt. When, inevitably, this debt proved to be unrefinanceable the company entered an irreversible spiral of decline.

Nevertheless some aspects of B&B's business, particularly the infrastructure related activities were well-founded and have re-emerged from the B&B collapse. These include B&B's successful wind energy business, now called Infigen and listed on the ASX; Prime Infrastructure, which was acquired by Brookfield; and B&B's well regarded public-private partnership business, which has been acquired from B&B and trades as Amber Infrastructure Group, headquartered in London.