Thanks to the tumultuous week in world financial markets there were some particularly interesting and potentially important bits of news that received scant coverage in the media. One such event was the resignation of Babcock & Brown's Phil Green from the board. What does thissay about the future of this company?
Only a few weeks ago, he moved from the chief executive role to that of a non-executive director. This week he resigned from that position as well.
Yesterday a whiff began to emerge that B&B would not survive beyond next week. This could be people making assumptions about the difficulties B&B will face thanks to the global financial crisis, which has intensified this week.
It could also be supposition, in part based on yesterday's move by the ratings agency Standard & Poor's to downgrade B&B's wholly owned financing subsidiary, B&B International, which will make the company's cost of funds 0.5 per cent more expensive.
A spokesman for B&B responded yesterday that the company had not triggered any of its banking covenants and, if it did so, would need to inform the market.
There is no market capitalisation clause in the debt agreement but there are others - the details of which are not all that clear, other than that they relate to net asset cover and interest cover.
B&B said yesterday that, at worst, the downgrade would cost it an additional $15million per year - which doesn't seem like a lot but this is a company that is in a lot of trouble.
B&B is not alone. It's one of several highly geared and structurally complex companies that is living courtesy of the fact that the banks prefer to put them though a financial work-out that involves selling assets and cutting costs. The banks don't want to take a hit to their balance sheets but they remain in de facto control.
When B&B and others found themselves in this predicament a while back, the notion of the work-out seemed like a good idea. The trouble is that we are now six months - and in some instances almost 12 months - into these work-outs and very few assets have been sold.
There is almost no orderly asset realisation going on because credit is constrained and, therefore, there are no buyers.
Anyone out there with cash could bewaiting until the asset prices go evenlower.
In a market where book asset values bear absolutely no resemblance to the value ascribed to them by the sharemarket, the answer to whether B&B ultimately remains within these covenants is anyone's guess.
The assets don't get revalued from week to week but do get revisited quarterly and, logically, the next point would be the end of September.
Standard & Poor's noted yesterday that the downgrade reflected the potential weakening of B&B International's operating and financial flexibility, driven by the continued fall in the listed parent B&B's share price and the heightened dislocation of global financial markets: "We believe that this could hamper B&B International's ability to sell assets."
The suggestion that the demise of B&B is imminent could well be far from the mark. However, it is hard to escape the fact that, sooner or later, individual banks within syndicates that have lent to these overgeared companies may break ranks and attempt to retrieve what they can.
It's easy enough for the Australian bank members in syndicates to hold rank because they are not feeling the kind of pressure that some of the US and European banks are under.
HBOS, for example, is a member of the B&B syndicate and is under intense pressure in its own right.
B&B International's bank facility has financial covenants but Standard & Poor's reckons there is sufficient headroom to cover them. But if market sentiment falls then the rating could be lowered again.
