B&B Power settles $444m termination deal

Alinta owner Babcock and Brown Power has today agreed to settle $444 million in debts and fees to terminate a management and advisory agreement, on condition that a binding deal is signed with the North West Shelf partners.

The payment will be made to Babcock and Brown International Group (BBIG), a unit within the failed investment bank Babcock and Brown.

The embattled BBP today said the $444 million payment, to be made in cash and scrip, is an 80 per cent reduction in the debt and fees outstanding to BBIG.

However the agreement comes with several conditions including the entry of a binding deal with the North West Shelf partners and the successful implementation of a debt restructure with BBP's syndicate of banks.

Shares in BBP have been in a trading halt since early last month after a ruling regarding a year-long gas price dispute with the North West Shelf was handed down. Details of the ruling have not been released.

The gas dispute revolves around the price that utility Alinta must pay for gas, and speculation has emerged today that should the gas price be higher than previously charged, Alinta may have to back pay the North West Shelf partners.

In a statement today, BBP said it expects negotiations with the North West Shelf partners, its banking syndicate and downstream customers to conclude within the coming days.

The announcement is below:

Babcock & Brown Power (ASX:BBP) today announces that it has entered into agreements with the Babcock & Brown International Group to settle the outstanding amount of the Babcock & Brown International Group debts and fees, totaling approximately $444 million, at a significant discount to face value, as well as to terminate the various management and advisory agreements between them.

The key terms of the agreement relating to the extinguishment of the debt and fees owing to the Babcock & Brown International Group are:

- a cash payment to the Babcock & Brown International Group of between $33.0 million and $37.7 million2;

- the issuance of 80.73 million BBP securities3 (representing a 10% post-issue holding) to the Babcock & Brown International Group; and

- the sale of BBP's interests in the Oakey Power Station4 and payment of the sale proceeds to the Babcock & Brown International Group.

These arrangements represent a circa 80% reduction in the debt and fees outstanding to the Babcock & Brown International Group. Clearly this is a very considerable reduction, which the BBP Directors believe represents a fair outcome for securityholders.

The agreement with the Babcock & Brown International Group has a number of conditions precedent to it, including:

- the entry into a binding settlement with the North West Shelf Joint Venture on terms satisfactory to BBP and the Babcock & Brown International Group;

- securityholder approval or the granting of any relevant ASX waiver from having to obtain such approval;

- confirmation to the Board from an Independent Expert that the agreed arrangements are reasonable and in the best interests of BBP securityholders; and

- the successful implementation of the debt restructure with BBP's syndicate of banks ("BBPF bank syndicate").

BBP has also entered into an agreement with the Babcock & Brown International Group that will terminate the management and advisory agreements at no cost. BBP has been progressively advancing to a future independent of the Babcock & Brown International Group for the past 12 months. In substance and in practice, the management of BBP by the Babcock & Brown International Group ceased in December 2008.

BBP will also acquire the Responsible Entity of the Babcock & Brown Power Trust from the Babcock & Brown International Group for $5 million, being equivalent to the cash on deposit in the account of the Responsible Entity in order to ensure compliance with applicable law.

BBP remains voluntarily suspended from trading on the ASX pending reaching agreement with the North West Shelf Joint Venture, the BBPF bank syndicate and BBP's downstream customers. Discussions with these parties are still ongoing and are expected to conclude in the coming days. At such time as these discussions conclude, BBP will make an announcement to the market which will operate to release BBP from its suspension from trading.