Babcock & Brown teeters on the brink THE future of financial engineering group Babcock & Brown hung in the balance last night with a syndicate of 25 banks - owed $3.1billion and including Australia's top four financiers - locked in an emergency meeting to decide its fate. After admitting it may breach covenants on the massive loan, Babcock risks becoming the second major example of the "Macquarie model" - fee-taking listed infrastructure funds - to fall victim to deteriorating global markets, following the collapse of Allco Finance group last month. In a dramatic rearguard action, Babcock will start sacking 850 employees before Christmas - about 60 per cent of its workforce - and will race to hack 50 per cent of non-staff costs in its last-ditch bid for survival, The Australian reports. The group, which owes about $50 billion across its businesses, will also split in two to focus solely on infrastructure investment and add more assets to a fire sale that kicked off in August after it unveiled a 30 per cent profit cut to $175 million for its first half. Babcock chief executive Michael Larkin admitted yesterday the bank had already closed a number of "small offices" in Europe and would close more. The Australian has learned that lenders were stunned when Babcock called a surprise meeting with them on Tuesday night to outline its weakened financial position. "Just to be clear, our proposal is to delever the company, but if we try to do it too quickly, we will lose value," Mr Larkin said. After five months of turmoil, a salvage operation has been mounted in light of global market conditions that pushed Babcock's share price down to less than 1 per cent of its $34 peak last year. Shares in Babcock yesterday shed another 6c to 25c. Since the first review of the loan in June, founder Jim Babcock and long-time chief executive Phil Green have quit and the company has failed to execute its recovery plan fast enough. Its prospects appear grim after ratings agency Standard and Poor's downgraded its senior debt to below junk status. The proposed debt restructure prompted a four-notch downgrade on fears the the company may not reach agreement with its banks. If a fresh deal is not struck Babcock will most likely be called into default. It is now worth just $92 million, compared with more than $10 billion last year. Babcock's main loan, of $2.8 billion, is split between 25 Australian and offshore institutions, led by Bank of Scotland. Two of the banks are more exposed than their peers, after splitting an additional $300 million. Westpac is believed to be owed $240 million, half of which is secured, the Commonwealth and National Australia Bank are owed $150 million each, and ANZ $120 million. Those three loans are secured. After a lengthy review by financial advisers Deutsche Bank and Goldman Sachs JBWere, Babcock said yesterday it had decided to narrow and simplify its focus, ejecting some assets to become a specialist infrastructure investment business. The Babcock restructure - to be achieved by mid-2009 - will create a segregated infrastructure business within B&B. Businesses and assets outside the infrastructure unit will be managed by existing teams of employees as they are added to the group's growing list of sale assets. "We intend to repay debt through the orderly sale of non-core businesses and assets and reduce our operating costs to create a sustainable base, which matches the focus of our ongoing infrastructure investment business," B&B chairwoman Elizabeth Nosworthy said. Babcock will slash its staff from 1450 to 600 by 2010, through redundancies and transfers, as assets and businesses are sold. Read more on this story at The Australian.