Australian investment firm Babcock & Brown Ltd, hit by worries over high debt earlier this month, won a reprieve from its lenders, sending its shares up as much as 17 per cent today.
Babcock is Australia's second-biggest securities firm and ultimately controls Eircom.
Two-thirds of Babcock & Brown's 25-member bank consortium agreed to drop a clause which gave lenders the power to review terms of a A$2.8 billion (€1.7 billion) corporate debt facility if Babcock's market value fell below A$2.5 billion.
The company's market capitalisation fell below that level earlier this month, sparking a major sell-off as investors feared creditors might invoke the review clause and force the firm to quickly repay the debt.
In return for dropping the review clause, Babcock & Brown agreed to pre-pay some of the debt and pay a higher interest rate - 50 basis points more - on the three-year debt facility.
If fully drawn, the higher rate would cost Babcock & Brown an extra A$10 million over the three years, Chief Financial Officer Michael Larkin told a media briefing.
"I suppose this has taken away one uncertainty which was hanging over the share price," said Peter Vann, head of investment research at Constellation Capital Management.
But he added it was still unclear what debt-to-equity ratio Babcock was targetting over the next year.
Babcock shares rallied as much as 17 per cent to A$7.44, giving it a market value A$2.48 billion, a far cry from its A$11.6 billion value in June 2007. It later pared some of the gains but was still up 12 per cent at A$7.12 by early afternoon.
Babcock, which manages about A$72 billion in global infrastructure assets, said it would pre-pay about A$400 million of its debt using the proceeds from previously announced asset sales once the transactions are closed.
Bloomberg