Hedge funds in 'salvage' bid for Babcock & Brown

Royal Bank of Scotland is managing an offer by a group of hedge funds to refinance debt held by Babcock & Brown Infrastructure Group, an energy and transport investor whose shares tumbled 97 per cent in two years.

The hedge funds have offered to repay Babcock & Brown Infrastructure's corporate debt with A$600 million ($727 million) of new bonds, a A$350 million loan, and A$400 million of new equity, according to a statement from the Sydney-based company that counts Britain's third-biggest container dock among its assets. It is already weighing a rival deal with a potential cornerstone equity investor that it hasn't named.

"This is very much a salvage operation; they're trying to salvage a wreck here," said Ben Potter, a research analyst at IG Markets.

"You've got a second proposal, so that's a good thing, but then you've also got downside in that it doesn't fundamentally address the debt issues, it just delays them."

Demand for distressed debt is rising as hedge-fund investors seek to acquire assets cheaply from indebted companies struggling to refinance maturing bank loans and bonds.

Babcock & Brown Infrastructure, with A$9.1 billion in total proportionate debt and A$1.2 billion in corporate level debt facilities, is unlikely to be able to refinance upcoming maturities through asset sales, it said on September 4.

Its board has "a number of concerns as to whether legally and commercially the proposal submitted by RBS can be executed", it said in yesterday 's statement.

The company owns energy and transport assets in the US, the UK, China, Australia and New Zealand, including PD Ports, operator of Britain's third-biggest container dock.

- BLOOMBERG