Babcock & Brown faces potential review

Analysts slashed their ratings on the investment company, saying it is suffering a crisis of confidence that will be difficult to surmount after a 28 percent fall in its market value Thursday forced it into talks with its bankers.

"We see minimal potential for outperformance given the long road ahead to restore investor confidence in the Babcock & Brown brand and the risk overhanging Babcock & Brown's debt," said Merrill Lynch analysts Kieren Chidgey and Naveen Patney in a report, cutting their rating on the stock to "neutral" from "buy."

Babcock & Brown said Thursday it would meet with its banking syndicate to see if the banks would decide to trigger a review of its 2.8 billion Australian dollar ($2.6 billion) corporate debt facility after the investment bank's market capitalization ended below the key trigger level of 2.5 billion Australian dollars ($2.3 billion).

If the 25-member banking syndicate decides to proceed with a review, and the market capitalization is below 2.5 billion Australian dollars ($2.3 billion) at the end of four months, the lenders can request repayment of the debt with 90 days notice.

On Friday, the firm said a consortium, including its European Infrastructure Fund, has agreed to buy British train leasing company Angel Trains from Royal Bank of Scotland Group PLC for 3.6 billion pounds ($7 billion).

"The completion of this transaction demonstrates our continued ability to originate, structure and close a uniquely complex deal," said Babcock & Brown Chief Executive Officer Phil Green in statement.

But its shares sank another 24 percent to end the week at 5.25 Australian dollars ($4.92) on Friday after sinking as low as 4.70 Australian dollars ($4.42) earlier in the session.

In recent months, investor concern has grown over the company's high debt, recent acquisition costs and underperforming funds.

Babcock & Brown provides funding for real-estate and infrastructure projects worldwide, often through funds that specialize in everything from Japanese real estate to aircraft leasing to wind power in the United States and Australia.