It's game over for investment bank Babcock & Brown

BABCOCK & Brown, the former high-flying investment bank worth $10 billion at its peak, yesterday gave up its battle for survival.

BABCOCK & Brown, the former high-flying investment bank worth $10 billion at its peak, yesterday gave up its battle for survival.

It called in administrators after investors voted down a debt restructure plan.

Thousands of shareholders now stand to lose everything after the B&B board appointed voluntary administrators David Lombe and Simon Cathro of Deloitte Touche Tohmatsu, as it teetered on the brink of insolvency.

The appointment came after 58.14 per cent of New Zealand investors holding $600 million of B&B unsecured subordinated notes voted against a debt restructure plan involving them accepting just 0.1c in each $1 invested.

The rejection meant Babcock would be insolvent as it will not be able meet a $15 million interest repayment now due.

As the Babcock empire finally collapsed, the board maintained it was the liquidity crisis, and not debt, that caused its demise.

Chairman Liz Nosworthy admitted leverage was ladened on to the company, but it was not the "primary reason" for the group's collapse, which has left thousands of shareholders and creditors facing huge losses.

Ms Nosworthy, appointed chairman after founder Jim Babcock quit the board last year, said it was "devastating" to witness the destruction of wealth that had occurred for shareholders.

The Babcock empire was worth $10 billion at its peak, but the shares, which have been suspended for three months, were last worth just 32c.

"The board and the management team are extremely upset about this," Ms Nosworthy said last night. "We feel very much that the shareholders and the note holders who have suffered a substantial loss."

Ms Nosworthy refused to say if she thought the previous management deliberately poured debt into Babcock during the bull market run. "The Babcock model was a model that was relatively highly geared, but there were other companies with similar gearing," she said.

"The business required there to be a robust market out there. The loss of liquidity for a business model that is dependent on liquidity, it had an enormous impact."

The group now faces a $1.5billion net negative asset position, reflecting the difference in valuation and current asset pricing.

Under a complex structure, Babcock's physical assets are held in a separate unlisted entity that will maintain asset sales in order to repay the company's $3.2billion of debt in the next two to three years.

The vote to restructure the subordinated debt was overwhelmingly voted down, and required approval from both New Zealand and Australian holders.

Ms Nosworthy said Babcock was immediately hamstrung when the cost of wholesale finance soared and the availability of global money dried up.

"The real issue was the massive loss of liquidity in markets," she said. "We had deals on foot but they were unable to be carried out. There has been a domino effect right across the market, it was difficult to bring deals to fruition. We didn't have the ability to generate liquidity."

Babcock was granted a $150million emergency cash lifeline by its international banking syndicate in December, which allowed its temporary survival.

The satellite funds, particularly Babcock & Brown Infrastructure and the separate Power entity, have been quick to distance themselves from the parent company's collapse yesterday.

Ms Nosworthy said one of the proposals put by Babcock to its group of 25 domestic and international banks was for extra quick funding that would give the group a chance to trade itself out of trouble.

The Australian banks hold at least $725 million of exposure to Babcock, with Westpac having the most through a $300 million secured and unsecured loan.

The banks, it is understood, remain confident of recouping most of the money given the asset sale program now under way.

"This is by far the worst liquidity crisis that I have seen in my corporate career," Ms Nosworthy said.

"It's as bad, if not worse, than 1929. It's right across the world. All the major banks are struggling. We were dealing with a range of banks from Australia, US and Europe. All of these names have different calls and demands on their balance sheets."

The move to administration is not expected to force immediate job cuts at Babcock on top of the 800 sackings already undertaken.

The board will next week meet the Deloitte administrators, which were yesterday examining the head company's accounts.

A deed of arrangement is being sought, which would return some money to creditors. But a deal is unlikely after Babcock earlier this year declared itself worthless of equity.

The first meeting for creditors, which are primarily noteholders, has been set down for March 25.