BABCOCK & BROWN

6. risk factors
6.2.8 Market conditions
Unfavourable financial or economic conditions may reduce
the number and size of transactions on which the Babcock
& Brown Group provides advisory services. Unfavourable
market conditions could also affect the Group’s ability to
engage in, or exit, principal investments as well as syndicate
into key markets, correspondingly reducing revenues.
6.2.9 Ability to access capital markets
The Babcock & Brown Group depends on a variety of markets
as principal sources of funding for many transactions, including
principal investment. Inability to access debt markets on
acceptable terms would significantly limit the ability of the
Group to fund its activities. Further, an inability to procure
debt funding for clients would limit the Group’s ability to
offer financing offerings and therefore reduce advisory and
arranging revenues.
The Babcock & Brown Group also depends on a variety of
equity investors to provide funding in transactions which are
either not fully funded by the Group or which are arranged
by the Group. Inability to access equity investors on acceptable
terms would also significantly limit the Group’s activities.
6.2.10 Investment risk
The investment activities of the Babcock & Brown Group
may be in relatively high risk, illiquid assets and the Group may
lose some or all of the amounts invested. The Group 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
the Babcock & Brown Group 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.
6.2.11 Relationship with key financiers
In order to finance the transactions in which it is involved
as either principal or advisor/arranger the Babcock & Brown
Group accesses a wide variety of forms of debt and equity
capital and associated providers. These sources vary widely
depending upon the transaction in question.
6.2.12 Third party obligations
The Babcock & Brown Group commonly invests alongside
third parties in its investment transactions. The inability of
co-investors to fulfil their obligations may result in the Group
being required to contribute additional capital that it did
not initially envisage or not completing transactions that it
otherwise might have completed.
The Babcock & Brown Group may also be exposed to credit or
performance risk in respect of its investments and arrangements
with other counterparties. For example, in PFI contracts, the
Group 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) the
Group may be required to source these services from other
parties at some cost to itself. The Group, where possible, seeks
to contract with reputable parties of acceptable credit standing
to mitigate such risks.
6.2.13 Industry issues
The business of the Babcock & Brown Group has particular
emphasis on the airline, real estate and infrastructure industries.
General risks in relation to the airline industry include
exceptional events such as terrorism. In addition there are
other business risks such as fuel costs and factors that impact
air travel and holiday activity.
General risks in relation to the real estate investment activities
include the ability to procure tenants, timing of rental payments,
demand for property from investors, expenses in operating,
refurbishing and maintaining properties, and timing of receiving
sale proceeds. In addition, the supply of competing existing or
new buildings may affect the ability to secure lease renewals,
retain existing tenants or obtain new tenants. In certain
circumstances, the Babcock & Brown Group works with
developers and other third party suppliers where the Group
may have exposure to problems which may impact its reputation
and ability to transact in the market.
In relation to infrastructure investment, general risks include the
risk that projects will not be completed within budget, and the
agreed timeframe, to the agreed specifications and, where
applicable, be successfully integrated into existing infrastructure
assets. The operations of infrastructure projects are exposed to
unplanned interruptions caused by significant catastrophic events,
such as cyclones, earthquake, landslide, flood, explosion, fire,
54 BABCOCK & BROWN SUBORDINATED NOTES