Lead Manager

SECTION 7
RISK FACTORS
7.1.10 Use of capital
Capital raised as a result of this Offer will be utilised for investment activities. Such investments made may be in
relatively high risk, illiquid assets and Babcock & Brown may lose some or all of the amounts invested. Babcock
& Brown may also be impacted by an inability to exit investments when desired, or to exit investments for full
value, especially where assets acquired do not have an active secondary market (or that market is volatile) or for
which there is only a limited number of investors. As a consequence, the value of an asset may ultimately be less
than its apparent value.The success and profitability of Babcock & Brown will, in part, depend upon the Group
investing in assets which have the ability to increase in value over time and where such value can be realised
for cash.
7.1.11 Relationship with key financiers
In order to finance the transactions in which it is involved as either principal or advisor/arranger Babcock & Brown
accesses a wide variety of forms of debt and equity capital and associated providers.These sources vary widely
depending upon the transaction in question, for example in relation to Aircraft and Rail Operation Leasing (BBAM
and BBRM) Babcock & Brown places significant reliance on two respective providers for the provision/sourcing of
equity investment.While management is confident that alternative sources of financing could be found if required,
Babcock & Brown has enjoyed long relationships with both of these entities and is confident of this continuing.
7.1.12 Third-party obligations
Babcock & Brown commonly invests alongside third parties in its investment transactions.The inability of
co-investors to fulfil their obligations may result in Babcock & Brown being required to contribute additional
capital that it did not initially envisage or not completing transactions that it otherwise might have completed.
Babcock & Brown may also be exposed to credit or performance risk in respect of its investments and
arrangements with other counterparties. For example, in UK PFI contracts, Babcock & Brown generally seeks to
contract out construction and maintenance of facilities to third parties at pre-determined prices.To the extent
that these parties cannot fulfil their contractual obligations (for example due to insolvency) Babcock & Brown
may be required to source these services from other parties at some cost to itself. Babcock & Brown, where
possible, seeks to contract with reputable parties of acceptable credit standing to mitigate such risks. Similar risks
exist in relation to the Citta development at Parkville Gardens in Melbourne.
7.1.13 Industry issues
The business of Babcock & Brown has particular emphasis on the airline industry. General risks in relation to that
industry include exceptional events such as SARS or terrorism. In addition there are more general business risks
such as fuel costs and the level of general travel activity.
Certain of Babcock & Brown’s investments are in operating companies with significant development components
such as PrimeLife Corporation Limited and Environmental Infrastructure Limited.While the value of the assets
may exceed the liabilities in these businesses, under normal operating conditions these businesses rely on cash
flow to fund the development components.Therefore should cash flow be constrained this could have an adverse
impact on the business and significantly impair the value of the investment. PrimeLife is currently seeking to raise
funds to meet its cash flow requirements. If that raising is not successful the value of Babcock & Brown’s
investment in PrimeLife may be significantly impaired. However, even in the circumstances of a complete loss,
that loss would not be material in the context of the Forecasts.
7.1.14 Regulatory environment
Babcock & Brown is subject to extensive regulation in multiple jurisdictions. Babcock & Brown may be fined,
prohibited from engaging in some business activities or subject to limitations or conditions on business activities.
New laws or regulations or changes in the enforcement of existing laws or regulations applicable to clients may
also adversely affect business performance. For example, there are currently pending bills in the US Congress
which may potentially have an adverse effect on Babcock & Brown’s lease advisory and structured finance
businesses, with provisions including:
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