The end appears nigh for B&B

It is often the way when struggling companies get close to the end that developments move very quickly. This is where Babcock & Brown is now and the rating agencies are struggling to keep up. The move by HvB on Wednesday night to freeze deposit funds it holds from B&B is probably the last straw and has led to three downgrades from Standard & Poor's in less than two weeks.

On Friday, S&P moved the long-term credit rating it assigns to Babcock & Brown International (BBI) to 'CC', one step away from 'D' (default) and left it on CreditWatch with negative implications. On Wednesday, both S&P and Moody's responded to B&B's announcement that it would retrench 850 staff and embark on the sale of all non-infrastructure assets.

S&P lowered its long- and short-term ratings on BBI to 'CCC+/C' and left them on CreditWatch Negative and acknowledged that default was looking increasingly likely, should B&B's bankers move to accelerate debt repayment. Only the week before it had lowered the ratings to 'BB-' from 'BB' and placed it and the short-term 'B' rating on CreditWatch with negative implications. S&P had then noted that financial market dislocation continued to hamper the asset sales required to meet debt reduction targets and maintain the confidence of its bankers.

Moody's lowered the corporate family rating that it assigns to Babcock & Brown Infrastructure Group to 'Ba2' from 'Ba1' and left it on review for further possible downgrade. Moody's said the group faces increasing liquidity risk at a time when payments need to be made for certain investments and to repay maturing debt.

Without committed facilities and with tight capital markets, dependence on asset sales that may not be timely is increasing. Ratings could decline rapidly if material progress is not made in the next few weeks, though even that timetable may prove generous.