BABCOCK & BROWN

6. risk factors
Before applying for BBSN, you should consider whether
BBSN are a suitable investment for you. You should be aware
that there are risks associated with an investment in BBSN
generally, many of which are outside the control of Babcock
& Brown and its Directors, including the risk factors set out
in this Section and other matters mentioned in this Prospectus.
As Holders have a right to request Ordinary Shares in certain
circumstances, you should also be aware that there are risks
associated with an investment in the Babcock & Brown Group
generally, many of which are outside the control of the Directors,
including the risk factors set out in this Section and other matters
mentioned in this Prospectus.
Before applying for BBSN you should read the entire Prospectus
and carefully consider the following risk factors. You should
consider your own investment objectives and financial
circumstances, and should consider seeking appropriate
professional advice before deciding whether to invest in BBSN.
6.1 Risks associated with investing in BBSN
Set out below are the general risks associated with an investment
in BBSN. In particular these risks arise from the nature of BBSN
and the Terms.
6.1.1 Market price and liquidity
The market price of BBSN will fluctuate due to various factors
including general movements in interest rates, the Australian
and international investment markets, international economic
conditions, global geo-political events and hostilities, investor
perceptions and other factors. You should be aware that the
market price of BBSN may be more sensitive than that of
Ordinary Shares to changes in interest rates. Increases in
relevant interest rates and/or changes in the credit worthiness
of Babcock & Brown may adversely affect the market price of
BBSN and BBSN could trade on ASX at a price below their
issue price of $100. Holders who wish to sell their BBSN on
ASX may be unable to do so at an acceptable price, or at all,
if insufficient liquidity exists in the market for BBSN.
Ordinary Shares delivered at the request of a Holder will rank
equally with existing Ordinary Shares. Accordingly, their value
after being Exchanged will depend on the market price of
Ordinary Shares.
Holders who wish to sell their Ordinary Shares held as a result
of Exchange may be unable to do so at an acceptable price,
or at all, if insufficient liquidity exists in the market for
Ordinary Shares.
6.1.2 Non-payment of Interest Payments
Interest Payments are expected to be made, however, Babcock
& Brown may defer that obligation in certain circumstances,
including in the event that the Directors determine that there
is insufficient cash to make the Interest Payment.
The expected primary source of funds to meet Interest Payments
is interest payments received by Babcock & Brown from BBIPL
under the BBIPL Loan. In certain circumstances, BBIPL may
be prevented, under the terms of its Existing Corporate Facility,
from making such interest payments. For example, BBIPL will
be prevented from making such payments without senior
lender consent if:
• there is a continuing default under the Existing
Corporate Facility;
• there is a substantial reduction in the shareholding
of the Group by employees;
• more than 10% of certain key management individuals
leave the employment of the Group;
• Ordinary Shares are delisted or the average Ordinary
Share price declines by more than 25% in any quarter;
• any individual acquires more than 20% of the issued
Ordinary Shares; or
• net profit after tax is less than $100 million or there is
an attachment against the assets of a member of the Group
other than BBIPL for more than $20 million.
The terms and conditions of the BBIPL Loan are equivalent to
the Terms in all material respects except that the amount of the
BBIPL Loan represents the net Offer proceeds. Investors should
be aware that in the event that Babcock & Brown receives no
interest payments from BBIPL, there may not be funds available
to meet Interest Payments on BBSN. In these circumstances,
any Outstanding Interest will itself attract interest at the applicable
Interest Rate plus 2.00% per annum.
6.1.3 Floating Interest Rate
From the Settlement Date until the first Reset Date, the Interest
Rate will be calculated for each Interest Period by reference
to the Bank Bill Swap Rate, which is influenced by a number
of factors and varies over time. The Interest Rate will fluctuate
(both increasing and decreasing) over time with movement in
the Bank Bill Swap Rate.
The range for the Bank Bill Swap Rate over the last 10 years
is set out in the chart below. The movement in the Bank
Bill Swap Rate in the future may be greater or less than that
shown in the graph. The graph should not be taken as an
indication of future movements in the Bank Bill Swap Rate.
50 BABCOCK & BROWN SUBORDINATED NOTES