Babcock and Brown takes ratings hit

Babcock and Brown has suffered a further blow, with ratings house Standard & Poor’s having placed Babcock and Brown International on “CreditWatch with negative implications”.

Babcock and Brown revealed the Standard & Poor’s assessment to the Australian Securities Exchange (ASX) today after yesterday responding to an ASX query on its market capitalisation review.

The S&P analysis said the CreditWatch negative reflected the risk that a fall in Babcock and Brown’s market capitalisation to below $2.5 billion might trigger a review of the facility.

“Should the share price fall result in the banks serving notification of a review, the rating will likely be downgraded by one or more notches and remain on CreditWatch negative, pending progress on any review,” according to S&P credit analyst Shard Jain.

It said S&P understood that a fall in market capitalisation to below $2.5 billion did not constitute an event of default for the facility, rather that it might trigger a review event under which Babcock and Brown international would not be entitled to negotiate in good faith over a four-month period to reach an agreement on a remedy or resolution.

Yesterday, in response to an ASX query, Babcock and Brown chief executive Phil Green sought to reassure the market, pointing out that the market capitalisation review clause in the group’s corporate debt facility served as a point where the company’s lenders could choose to review the security of their loans with the company.

“Reaching the market capitalisation level does not in itself trigger any requirement to repay the debt or accelerate repayment of the debt,” Green said. “Our lenders are more focused on fundamentals than daily share price movements. The group’s fundamentals continue to be in robust shape, particularly the infrastructure business.”