Babcock & Brown taps credit lines to keep covenant

Australian investment firm Babcock & Brown Ltd has had to tap undrawn credit lines to avoid breaching one of its loan covenants, the Australian Financial Review said on Monday, quoting its chief executive.

Babcock chief Michael Larkin told the daily that Babcock drew down the facility to avoid breaching a covenant requiring it to keep short-term assets in excess of short-term debt.

"We wanted to make sure that we prudently met that ratio at June 30," Larkin told the paper.

Larkin also said Babcock was in frequent discussions with its around 25 creditor banks amid falling asset values.

Last month Babcock said it had been approached by a number of parties on a potential strategic relationship.

Babcock & Brown and its satellite funds have seen their shares nose-dive this year as the group's model of borrowing heavily to buy assets and then sell them into investment funds came under stress amid the global credit crunch.

It has made sweeping management changes, restructuring plans, and asset sales.