Lead Manager

BABCOCK & BROWN PROSPECTUS
In addition to designing and marketing transactions, the Special Products team also devotes significant time to
assisting Babcock & Brown’s other Business Groups, providing them with a significant competitive advantage in
their business activities. Examples of these types of transactions comprise rail and aircraft operating leases,
cross-border, municipal and finance leasing and life insurance policy securitisation products.
The Special Products business’ focus is generally on the completion each year of a small number of large-size,
high-value-added transactions.Typically, transaction sizes are US$500 million to US$1 billion or more in value,
with four to ten transactions being completed over a typical year.There is a high level of repeat business from
clients within this market segment.
The typical fee profile is an up-front fee payable at closing, with periodic fees being payable, contingent on the
continued effectiveness of the product.
Case Study Life Settlements
A Life Settlement is the sale to a third party of an existing life insurance policy for more than its cash
surrender value but less than its net death benefit. It is commonly used as a means for an insured person
to obtain cash from their policies without incurring policy-surrender penalties levied by many life insurers.
Babcock & Brown was approached in early 2000 by Peachtree Settlement Funding (Peachtree), a company
that specialises in the financing of high-credit-quality consumer receivables, about raising capital for their
entry into the Life Settlements business. Babcock & Brown was attracted to the sector given its relative
immaturity and strong growth potential, and decided to enter into a joint venture with Peachtree.
Historically the Life Settlements business was predominantly financed through high net worth retail
investors. Babcock & Brown worked with Peachtree to develop an origination platform and financing
paradigm that was both institutionally viable and scaleable to the investment sizes that institutional
capital would require.
The Babcock & Brown/Peachtree platform was first utilised for a debt facility that was provided by a
major European bank in early 2001. This facility provided for a term loan to purchase the policies and to
pay up-front fees (to Babcock & Brown and Peachtree), and a liquidity facility to pay ongoing premiums
and expenses until the policies mature. This facility was fully utilised by mid-2003.
In early 2003, Babcock & Brown was seeking new financing parties to invest in the Life Settlements
market. Coincidentally, many German fund providers were looking to expand their product base, and had
identified Life Settlements as an attractive investment for German investors due to the high credit
quality, relatively high return, and favourable tax treatment of life insurance proceeds in Germany.
Seeking to leverage Babcock & Brown’s ongoing relationship with HVB, Babcock & Brown and Peachtree
chose to work with HVB FondsFinance to finance policies originated through the Babcock & Brown/Peachtree
platform. HVB FondsFinance raises capital for such funds through its German retail network.
HVB FondsFinance raised approximately US$260 million in a retail investment fund which went to
market in late 2003, well above its original target of US$50 million. This will allow the fund to purchase
life insurance policies with a total face value of approximately US$550 million and it is expected to be
fully invested by 30 June 2005. Babcock & Brown, Peachtree, and HVB FondsFinance are currently
planning a second fund which HVB FondsFinance expects to raise in the retail market during the first
quarter of 2005.
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