Babcock & Brown Limited - The difference between Infrsatructure Assets and Infrastructure Funds.pdf

8/10/2019 Babcock & Brown Limited - The difference between Infrsatructure Assets and Infrastructure Funds.pdf

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Babcock & Brown Limited

The difference betweenInfrastructure Assets and

Infrastructure Funds

10/2011-5844

This case study was written by Pierre Hillion, the de Picciotto Chaired Professor of Alternative Investments, Professorof Finance, and Jean Wee, Research Associate, both at INSEAD. It is intended to be used as a basis for classdiscussion rather than to illustrate either effective or ineffective handling of the specific investment situation.

Copyright 2011 INSEAD

This document is authorized for use only in Project Finance, P5 NovDec 2012 24 Oct to 12 Dec 2012 by Professor Pierre Hillion.Copying, printing and posting without INSEAD's permission is copyright infringement.


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Copyright 2011 INSEAD 1 10/2011-5844

Introduction

In the mid-2000s, as yields fell and equity markets reached lofty levels, infrastructure as an

asset class became attractive to investors like pension funds and retail investors seeking steadylong-term returns. The classic infrastructure asset was either a monopoly or oligopoly with predictable and secure long-term cash flow. Such cash flows derived from these long-lived,high-value physical assets through providing basic, everyday service that enjoyed consistent,inelastic demand with high barriers to entry and little risk of obsolescence. Investors, attracted by the characteristics of infrastructure assets , had sought to gain exposure by investing in publicly traded infrastructure funds that promised exposure to steadily increasing returnscoupled with liquidity. However, there were important differences between the two.

Background The Infrastructure Industry

Global Need for Infrastructure

Aging structures, the rapid pace of technological change, the increase in population, theemergence of mitigation and adaptation responses to climate changes, urbanisation, the rapidgrowth of emerging countries like China all these spelled a global need for the expansion ofinfrastructure to meet the demands of modern day living. While infrastructure in OECDcountries was being challenged by ageing populations and the ageing of their existinginfrastructure, developing countries such as those in the Middle East, Central and EasternEurope (CEE) and Brazil, Russia, India, and China (BRIC) were facing a need for all types ofhard infrastructure (such as toll roads, rail and airports) and soft infrastructure (such asschools and hospitals) to facilitate economic expansion and accommodate lifestyle demandsof their growing middle classes. Ranging from rail, power plants, water treatment plants toenergy-related investments, more than US$71 trillion in infrastructure investment wasestimated to be needed worldwide over the next 25 years, according to Organisation forEconomic Cooperation (OECD) estimates, with an average annual world infrastructurerequirement up to 2030 of about US$2 trillion, consuming at least 3.5 per cent of global grossdomestic product each year through 2030.

The Rise of the Infrastructure Fund

Previously financed by governments now increasingly hampered by fiscal deficits and budgetcuts, this demand for infrastructure coincided with the private sectors increasing appetite forinfrastructure assets. The Global Real Estate Centre of Ernst & Young estimated that privatesources could account for 10 per cent to 15 per cent (US$240bn to US$360bn) of the capitalneeded annually for infrastructure projects worldwide, drawn to the asset class by its stableand relatively high level of returns on the assets, the investment opportunities when thoseassets were pooled, the availability of cheap debt (at the time), and the need for diversificationfrom increasingly correlated traditional financial markets like the stock and bond markets.

With the rising attention from investors came the rise of infrastructure funds. The market forinfrastructure equity funds expanded exponentially between 2003 and 2008. In 2006, more

than US$20 billion of equity capital was raised, up from less than US$5 billion in 2004,followed by another big year in 2007, when about US$35 billion was raised, slowing to



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US$30 billion in 2008 as a result of the global credit crunch (US$70 billion was sought) 1. Theworld's 20 largest funds had nearly $130bn under management, 77 per cent of it raised over2006-2007, with about 63 per cent from new entrants, according to McKinsey & Company.

Appendix 1 shows a list of the pioneering infrastructure funds.

The externally managed listed infrastructure fund, which was pioneered in Australia by theMacquarie Group, was a financial product innovation that came about during a time wheninfrastructure asset values were on the rise. The model was simple: buy infrastructure assets,finance them largely with debt, and sell the assets to investors in a public listing through tax-effective trusts, with long-term management contracts in place to earn fee income. Listedinfrastructure funds generally had the following key attributes 2:

Multiple entities (companies and trusts) were listed as a stapled security;

Management of the infrastructure fund was contracted out to an external manager,typically a wholly owned subsidiary of the firm that established the fund;

The manager charged a range of fees - a base fee, which was often a percentage of theinfrastructure fund's market capitalisation adjusted for debt at the fund level and cash,and a performance fee, which was often 15% or 20% of the amount by which the fundoutperformed a benchmark index;

The fund would typically engage other parts of the external manager's organisation forfinancial advisory work such as debt arranging and other services (these fees wereusually subject to the review of directors independent of the manager);

The fund acquired assets in a variety ways, purchasing them directly from third-partyowners, from its manager's parent or sometimes from other entities managed by themanager;

In many instances, distributions paid to security holders were not fully covered byoperating cash flow; and

There tended to be obstacles to the removal of the external manager. These obstaclesfell into three broad categories: special shares, long-term contracts and contingent fees.Several infrastructure funds issued special classes of shares to the external manager,giving it the right to appoint a majority of the directors otherwise elected by securityholders. Some funds favoured long-term contracts which usually featured 25-year

management contracts. These agreements could only be terminated in a narrow rangeof circumstances without triggering an obligation to pay out the remainder of thecontract. Some of the newer funds also incorporated c ontingent fees - fees that wouldstart to be paid should the manager be removed.

Appendix 2 shows the structure of some Australia-listed infrastructure funds.

1 Infrastructure Still on Track, Proceed with Caution, Mercer, 30 Jun 20092 Infrastructure Funds: Managing, Financing and Accounting In Whose Interests, RiskMetrics Group,April 2008



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Risks of the Model 3

The sustainable and growing long-term cash flows of infrastructure assets mean

that infrastructure assets can typically support more debt than other businesses,which can increase returns to shareholders. This indicates the importance of

financial structuring and capital optimization in enhancing shareholder returns toowners of infrastructure assets.

Macquarie Infrastructure Company 4

As with all derivatives in that the funds derived from the assets the infrastructure fundmodel carried significant risks as a result of the financial engineering that went into itsconstruction. In April 2008, the RiskMetrics Group, the spun-off offshoot of JP Morgan thatcame up with the now industry-standard value-at-risk (VAR) measurement of portfolio risk,

published a critique entitled Infrastructure Funds: Managing, Financing and Accounting InWhose Interests, which raised investment-related concerns involving sustainability of themodel, the danger of overpaying for assets, fee structures that delivered high fees and provided an incentive to increase fund size, and accounting and governance issues. Appendix3 gives a list of the issues raised.

Had the post-2001 liquidity-rich environment remained indefinitely so, infrastructure fundswould have continued to produce rich returns for their investors, as well as the fund managers.Macquarie Bank, pioneer in the field of infrastructure funds, was dubbed the MillionairesFactory for the bonuses it paid its employees out of the earnings from its infrastructure fund business5. However, things turned pear-shaped after 2007.

Subprime Crisis and the Effect on Leveraged Investments

As with many other financial crises, the global financial crisis started off with the bursting ofa real estate bubble, after housing prices in the US peaked in approximately 2005-2006. Lowinterest rates, an increase in loan incentives such as easy initial terms and a trend of risinghousing prices had encouraged borrowers to assume difficult mortgages in the belief theywould be able to quickly refinance at more favourable terms. However, once interest rates began to rise and housing prices started to drop moderately in 20062007 in many parts of theUS, refinancing became more difficult. As easy initial terms expired, home prices failed to goup as anticipated and adjustable rate mortgages (ARM) interest rates reset higher, defaults in

the less credit-worthy subprime mortgage category started to climb. Foreclosures acceleratedin the US in late 2006 and triggered a global financial crisis through 2007 and 2008, due tosecuritization practices that had enabled toxic subprime mortgages to be passed on globallyto international banks, other financial institutions like hedge funds and asset managementfirms, and even to retail customers through structured products. Through securitization,instead of banks originating a loan to the borrower/homeowner and retaining the credit(default) risk, banks essentially sold the mortgages and distributed credit risk to investorsthrough mortgage-backed securities (MBS) and collateralized debt obligations (CDOs).

3 This section is drawn mainly from Infrastructure Funds: Managing, Financing and Accounting In Whose

Interests, RiskMetrics Group, April 20084 Introduction to Infrastructure, Macquarie Infrastructure Company website, downloaded 25 Sep 20095 Source: The Making of the Millionaires Factory, The Guardian, 16 Aug 2005.



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With growing risk aversion, credit spreads increased sharply and even low-risk tranches ofMBS with no exposure to the subprime sector were affected. Investors became more cautiousin investing in these assets and liquidity in these markets, particularly in more complex

products like CDOs, was reduced significantly. Financial institutions were forced to writedown MBS positions and account for losses in their balance sheets. With their own balancesheets taking a hit, these financial institutions began pulling back credit and reducing lendingto other sectors of the economy. The credit crunch spread beyond housing and disruptedglobal financial markets as investors were forced to re-evaluate the risks they were taking.Institutional investors shifted money away from money market funds that held risky corporatedebt to funds that invested primarily in ultra safe government-issued securities like treasury bills and bonds. The extreme risk aversion led to even sound companies being hard-pressed tofund their capital needs in the markets, with spreads widening dramatically, and maturitiesshortening as illiquidity in the mortgage market spread to asset-backed commercial paper,which became partially shut. Confidence was so shaken that even the inter-bank moneymarket was affected, as banks began to view each other with suspicion. Meanwhile stockmarkets all over the world started to significantly lose value. Appendix 4 shows the sequenceof events detailing the subprime debacle. The resultant environment led financial institutionswhich operated with high financial leverage being unable to serve their required capitalcharges or to refinance themselves.

Infrastructure Fund Babcock & Brown

They pushed the model to the limitThe incentives were not aligned withinvestors because the incentive of the model was to keep adding assets with moreleverage and generate more fees.

Ian Macoun, MD, Pinnacle Investment Management 6

Babcock & Brown Limited (BBL) was an investment firm listed on the Australian StockExchange (ASX), dubbed the mini-Macquarie as its modus operandi was similar to theMacquarie Group. BBL bought or developed infrastructure assets and spun them out into aseries of satellite infrastructure funds, which included Babcock & Brown Power (BBP),Babcock & Brown Infrastructure (BBI), Babcock & Brown Wind Partners (BBW) and privateequity vehicle Babcock & Brown Capital, amongst others. Appendix 5 gives details on thecompany and some of its satellite funds. The satellite funds such as BBP, BBI and BBW wereset up as a stapled security structure, consisting of multiple entities (e.g. a company and atrust) stapled together such that investors could only trade them as a bundle; the componentsecurities could not be traded separately. This structure aimed to be the most tax-efficient wayto maximize the flow of distribution to security holders. Trust structures allowed distributionsfrom cash flow which were not constrained by accounting profits or retained earnings, and taxefficiency was maximised as all income into the trust could be distributed without paying taxat the trust level - tax on the distributions were paid at the individual level, which could beefficient for certain investors depending on their taxation status. A typical structure wouldconsist of a company (or more) stapled with a trust, which would own the assets, with aBabcock subsidiary as a Responsible Entity to operate the whole scheme and another Babcocksubsidiary as a Manager of the assets. Sometimes a Bermuda-based company would also be

6 Downsizing Down Under: Can Australias Specialist Funds Survive?, Institutional Investor, Sep 2008



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AlintaAGL, Western Australias largest gas retailer, for A$2.6 billion 11, while BBI acquiredAlinta's energy transmission and distribution assets, and its maintenance business, for aboutA$2.56 billion dollars which included A$1.1 billion worth of limited recourse debt. BBW was

allocated Alinta's Wattle Point wind farm in South Australia. The rest went to SP. BBP andBBL paid for their purchases with equity issue and debt - BBP took on A$2.1 billion worth of bridge financing, while BBL funded its portion with a A$518 million corporate level bridgefacility (besides assuming the A$1.1 billion asset level debt). BBW originally had to fork outstock and A$9.5 million in cash for the Wattle Point wind farm 12, but the farm was sold toEnergy Infrastructure Trust for $225 million. BBW pocketed A$211 million out of the proceeds, with the difference returned to Alinta shareholders 13.

The Beginning of the End

Lenders and Shareholders

In early 2008, all had seemed well at BBL. BBLs February profit guidance for FY08 wasA$750 million, 17% higher than the year before of A$643 million. Although effects of thesubprime crisis were beginning to hit the markets, the company had managed, in March 2008,to expand its corporate debt from A$2.35 billion to A$2.8 billion, and to extend the facility fora further year to 2011. The syndication of the facility had also expanded from 20 to 25 banks,and included the support of the four major Australian trading banks. The corporate debtfacility, which was borrowed under BBIPL, however, had a market capitalization reviewthreshold of $2.5 billion. In conjunction with the extension of the corporate debt facility, BBLalso managed to raise $220 million through the placement of 16.12 million shares, at a fixed price of $13.65 per share, to long term existing shareholders of BBL and its managed funds.BBLs satellite fund, BBW, had also announced, in February 2008, strategic initiatives torealise profits from its European wind assets purchased cheaply under the frameworkagreements with Gamesa and Plambeck earlier. But in late May 2008, shares in BBL slumpedfrom A$16 to A$9.50 in just three weeks.

11 Alinta and AGL Energy (AGL) had executed a scheme of arrangement in 2006, redistributing their combinedassets amongst themselves A set of assets was placed into a joint venture AlintaAGL, 67% owned by Alintaand 33% by AGL. BBPs acquisition of Alintas 67% interest in AlintaAGL triggered a put/call conditionwhere BBP had to offer AGL the opportunity to buy BBPs interest at a price nominated by BBP. AGLcould either acquire this 67% interest at that price (A$1.06 billion) or sell its 33% interest to BBP at theequivalent price (A$522 million). In the event, AGL decided to put AlintaAGL to BBP at A$522 million.

12 The farm was subject to a put option arrangement between Alinta and AGL Energy, in which Alinta had the

option to sell the project to Sydney-based AGL before 24 Apr 07 for A$211 million (US$174.2 million). BBWcould direct Alinta to exercise that option.13 Alinta completes sale of Wattle Point Wind Farm, Ralph Wragg Australian Business News, 23 April 2007



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The market is questioning the survival of anything with a lot of debt What is particular of Babcock is they rely on deal-flow happening. Deal-flow is drying up.You cant get financing for transactions; they earned transaction fees, debt

arranging fees etc. There was a huge money train that the business relied upon.

Hugh Giddy, MD Cannae Capital Partners 14

The rout started on 23 May 08. After months of assuring the market that the refinancing of itsA$3.1 billion 15 debt was well-advanced, and originally targeted to complete by March 2008,satellite fund BBP made an unexpected announcement on 22 May 08 that the original $3.1 billion refinance at the asset level had been scaled back by its 11-bank consortium to $2.7 billion (secured by power stations). As a result, a further $360m needed to be raised throughrefinancing at the corporate level with an expanded consortium of banks, due by August 2008.In addition, there was a A$275 million capital shortfall as a result of the need to bring a Tamar

Valley power station, acquired from Alinta, onto the BBP balance sheet; it was originallysupposed to be project-financed. The stock fell 59% in 3 days. BBL had to step in to offer tostump up the missing A$360 million, while BBP scrambled to fund the additional capitalexpenditure. The market began to worry how much BBL would have to pump into its debt-ridden funds on top of its own debts.

On 3 Jun 2008, BBP received another blow. An explosion at a Varanus Island gas plant,which provided gas supplies to Alintas retail gas distribution business in Western Australia,disrupted operations. While BBP assured the market that it did not affect its A$2.7 billionrefinancing which was still to be closed, the possibly large negative impact on earningsweighed on the already troubled stock, and its parent BBL.

On 11 and 12 June, BBL shares were sold heavily - market observers believed that hedgefunds were shorting the stock to test BBLs A$2.5 billion market capitalization reviewthreshold 16 - and the fall triggered a review of the A$2.8 billion debt facility that had only been refinanced two months earlier. Other Babcock-related funds were also affected in thesell-off. When BBP cancelled its 2H08 distribution, it was another nail in the coffin for theBabcock stocks. BBP called in UBS for a strategic review and began selling assets in July.

Yet throughout the turmoil, BBL kept reiterating its profit guidance. Then on 11 August, just10 days before the earnings release, BBL abruptly changed its tune. It announced that the1H08 net profit would be 25% to 40% below the previous years and that the full-year net

profit would be unlikely to exceed FY07s A$643 million. BBP added fuel to the fire when itannounced, on 18 August, an A$410 million write-down to the Alinta assets and an A$42million loss on the Tamar Valley power station which it had sold to the Tasmaniangovernment below cost. Furthermore, future distributions were now subordinated to BBP paying off its debt. It confirmed the markets view that the Alinta assets were bought at thetop of the cycle. The Babcock stocks went into freefall. On 21 August, when BBL released itsearnings, its 1H08 net profit had fallen 30% to A$175 million. BBL stock crashed a further36% on the back of the news.

14 Ibid .15 A$2.1 billion from the Alinta purchase and about A$1 billion asset level debt16 It was announced as part of a market update dated 27 Mar 08.



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Nonetheless, BBLs lenders were willing to give it a chance. After talks, BBLs lendingsyndicate waived the right to review, and the Babcock & Brown group commenced on a seriesof restructuring, starting with the replacement of Chief Executive Officer Phil Green with

Michael Larkin, the lay-off of 1000 staff, and the divestment of its real estate, leasing,corporate and structured finance businesses, to focus on becoming a specialist infrastructureinvestment business. This would incorporate fund management operations and stakes in corelisted and unlisted infrastructure funds as well as the groups PPP, wind, thermal and solar projects development pipeline.

We intend to repay debt through the orderly sale of the non-core businesses andassets and reduce our operating costs to create a sustainable base that matchesthe focus of our ongoing infrastructure investment business

Babcock & Brown 17

That was the plan, but the BBL stock price continued to free-fall. Said Martin Lawrence, ananalyst with the RiskMetrics Group,

[Stocks are falling in part because of the credit crisis], but I think you are alsoseeing a governance discount almost an agency discount. 18

By this time, the Babcock satellites were all selling off assets, and in the case of BBI andBBP, at fire-sale prices 19. At the end of August 2008, although BBP had managed, throughrefinancing, asset sales and extension of its credit line to Mar 09, to meet the A$3.4 billionfunding need, it was being supported by A$403 million from BBL. By October, BBP was

putting itself up for sale.The end game came in November 2008, when BBL announced it was consulting its banks because of uncertainty over its loan covenants. Its shares were put on a trading halt on theASX as the company sought to strike a new deal with its bankers. In December, a A$150million facility due 31 Dec 2009 was provided by its bankers to provide immediate cash flowrelief for impending interest payments, with a hefty margin of Bank Bill Swap Bid Rate(BBSY) + 600 basis points, while BBL and its bankers discussed the capital restructure of theBabcock & Brown group. In January 2009, with its shares still suspended, BBL stated that itwas in a substantial negative net asset position, with liabilities of at least A$1.5 billion.

Apart from its $3.1 billion of corporate debt, BBL had about $6.5 billion of debt securedagainst its assets. This did not include the debt in various satellites such as Babcock & BrownInfrastructure, which had A$8.6 billion of borrowings on its balance sheet, and Babcock &Brown Power, which had more than A$3 billion. These debts also did not include other debtsthat were attached to the power station and other infrastructure assets run by the two funds 20.Credit Suisse estimated that there was about A$46 billion worth of debt across the group,

17 The Fall of the House of Babcock, Project Finance International, 26 Nov 0818 Digging Out Down Under B&B CEO Phil Green admits his firm structure needs review, Institutional

Investor, Jul/Aug 200819 Although BBW shares were also punished by the market for its association with the Babcock name, it was

in relatively better shape due to its lower debt load and better demand for its petroleum-free wind farms. Infact, in Sep 08, it was proposing to buy back 10% of its shares, later increased to 30%.20 Babcock to suspend shares as recue deal nutted out, The Sydney Morning Herald, 12 Jan 09



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three times the value of the company at its highest level 21. Appendix 10 shows the debtmaturity profile of BBL as at mid-2008.

Following the 19 Nov 2008 trading halt announcement, S&P downgraded BBL to CCC+ fromBB-, citing increased risk of breached loan covenants leading to lenders demandingaccelerated repayment of debt. The ratings agency also highlighted the difficulties of pursuingasset sales in the current market climate. On 21 Nov, S&P downgraded BBL to CC fromCCC+, and placed the borrower on credit watch with negative implications, after a disputearose between HypoVereinsbank/Unicredit (HVB) and BBL over access to BBLs A$100mdeposit with HVB. HVB, one of the 25 banks in the syndicate, had frozen access to thedeposit 22, angering the rest of the syndicate involved in the restructuring 23. CC was the lowestrating that S&P would apply to a company that had not actually defaulted on any debt.

Bondholders

I thought the notes were safer than the shares and at that time they were paying more than bank interest and I was happy with that. I think one of thereasons why we went into them was that it was the second largest [investment]bank after Macquarie. We thought it was as safe as could have been expected.

Retiree Bob Billett 24

Back in the heydays in 2005 and 2006, BBL had no problems raising capital. Investors werekeen to place money with BBL at whatever the terms. Besides raising funds through issuanceof its own shares and listing satellite funds, in 2005 and 2006, BBL issued a series of

subordinated notes BBSN1 and BBSN2, with BBSN1 issued in Australia at $100 par raising atotal of A$416,223,400, and BBSN2 issued in New Zealand at NZ$1 par raising a total of NZ$225,000,000. The net proceeds of the offerings were lent by BBL to BBIPL as BBIPLLoans, and BBIPL used the proceeds of these loans to fund the investment and developmentactivities of the Babcock & Brown Group (Appendix 11 shows the arrangements). Assetswere placed under BBIPL, while payment of interest and repayment of the principal on theBBIPL Loans were the expected primary source of funds for BBL to service the interest payments and redemption of the notes.

The BBSN notes were unsecured, subordinated, cumulative and resettable. Appendix 12shows some of the important terms of the notes. Under the terms of the notes, both BBL and

investors could opt for early exit under certain conditions. In particular, investors could

21 How the credit crunch caught, Asiamoney, Sep 200822 An Australian newspaper The Age on 21 Sep 09, The fall and fall of once-mighty Babcock & Brown,

reported that in mid-June 08, founder and Executive Chairman of BBL, Jim Babcock had already asked hisfellow directors to consider the groups solvency given its debts. The board then initiated Project Veyrondesigned to pull in a major equity investor and to restructure the groups businesses. In August, ProjectVeyron was expanded to sound out possible buyers for BBL, and in December, two proposals were put tothe banking syndicate. Plan A was to recapitalize the group reportedly through an equity injection byBritish Equity firm Terra Firma to purchase 91% of BBIPL (not BBL) for A$2.5 billion; Plan B was to sellall its assets. HVBs decision to hold on to the A$100 million deposit apparently destroyed confidence

among the groups banking counterparties which subsequently prompted Terra Firma to withdraw its offer.23 The Fall of the House of Babcock, Project Finance International, 26 Nov 0824 Little hope for investors as B&B value destroyed, The Australian, 26 Mar 09



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outstanding 25. Surplus cash proceeds realized from the asset disposal programme, over andabove the amount required to continue operating the business (through BBIPL), would beapplied to reduce the corporate debt facilities first.

With BBL shares having been in a trading halt, and then suspended for 20 days, that triggeredthe existing clause in its arrangements with noteholders that they could claim repayment oftheir investments. However, under the restructuring deal with the banks, there was no wayBBL could meet the interest payment coming due as well as the repayment demands.

To proceed with the restructuring, BBL proposed to restructure the BBSN notes and buy outnoteholders at a substantial discount i.e. one tenth of a cent for each dollar of face value. BBLwarned that if the restructure was not approved, then regrettably and in the absence of furtherdevelopments not currently contemplated, the directors of BBL would have no choice but to place the company into administration 26, where noteholders and shareholders would likely

get nothing. BBL asserted that the administration of BBL would not affect the solvency ofBBIPL, the primary operating company in the Babcock and Brown group and borrower of thecorporate debt, which would continue to operate and implement the revised business planincluding the asset sale programme.

In March 2009, noteholders, unhappy with getting virtually nothing, voted against therestructuring and sent BBL into administration. In June, BBL was delisted from the ASX, andin August, creditors put BBL into liquidation.

Postscript - Life after Babcock

By October 2008, BBL and its satellite funds were trying to distance themselves from oneanother. In a bid to shore up the operational independence of BBI and BBP, and restoreinvestor confidence in the Babcock & Brown operating model, BBL had announced changesto a range of governance and fee arrangements: the boards of BBI and BBP were adjusted tocomprise a majority of independent directors with an independent Chairman; the annual fees paid to BBL would be restructured to include a security price threshold before incentive feesaccrued; both funds would have the right to obtain independent financial advice; control ofkey management personnel would be directly under the ambit of the independent directors;and staff incentives would be linked solely to the operating performance of the fund itself(instead of BBL previously). The market, however, felt that the problems facing the funds hadgrown beyond ensuring good governance.

After BBL went into administration, BBI remained in dire straits even after 18 months ofasset sales. In June 2009, it reported a net loss of A$997.1 million, due to asset impairment ofA$895.1 million. It had A$9 billion worth of debts with a A$300 million corporate debtfacility due February 2010. By September 2009, it was looking for a cornerstone investor toshore up its finances, fearing that it would breach its debt covenants. In November 2009,shareholders approved a A$1.8 billion recapitalization, with Canadas Brookfield AssetManagement Inc. taking on a 39.9% stake. Existing shareholders received a capitaldistribution of 4 cents a security, and just 0%-0.1% of the recapitalized entity following a

25 The Fall of the House of Babcock & Brown, Project Finance International, 11 Feb 0926 Notice of Meeting of Noteholders, Explanatory Memorandum and Offer Document, BBL, 13 Mar 09



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15,000-for-1 consolidation of the securities, if they did not participate in the equity raising.With the recapitalization, BBI cut its ties with the Babcock group, internalized itsmanagement (i.e. the management was hired by management company and not by BBL) and

changed its name back to Prime Infrastructure Holdings. Termination costs were limited tooutstanding management fees and associated costs. It continued to report losses, and in Dec2010, Prime Infrastructure was taken over and merged with Brookfield Infrastructure PartnersLP for A$1.6 billion.

BBP was not in much better shape. At the end of June 2009, it had A$2.96 billion in borrowings coming due within a year, including A$398 million in unsecured related partyloans still outstanding to the Babcock & Brown group; its market capitalization was onlyA$55.2 million. It only managed to cut its ties with the Babcock group in December 2009,when it struck a deal to pay the Babcock group A$444 million, to cut debt and end allmanagement agreements. It changed its name to Alinta Energy in January 2010. Nonetheless,it was still burdened with a A$2.7 billion debt, which it had rolled over in December 2010 toSeptember 2012. After recording a A$465 million asset impairment and A$577 million netloss in FY2010, in the midst of trying to find a buyer, BBP was finally rescued by a group oflenders led by US private equity house TPG in a debt-for-equity swap. Earlier efforts to find a buyer had led to bids that were insufficient to meet its debts.

In contrast, BBW recorded a profit of A$192.9 million at the end of June 2009, with noimpairment of assets and a cash balance of A$405 million after paying down debt. BBW wasthe earliest of the Baby Babcocks to separate from BBL. As early as November 2008, BBWhad submitted a proposal to BBL to buy out the management rights and other associatedagreements relating to the fund, such as the exclusive financial advisory mandate, for a totalof A$44 million, with plans to internalize the management. Negotiations reached financial andcontractual close on 31 December 2008, and the company changed its name to Infigen Energyin April 2009. It also terminated its framework agreements with Gamesa and Plambeck,selling off its remaining European wind farms to concentrate on the growth markets of US andAustralia.

Appendix 13 shows the timeline of the events post BBL IPO.



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Appendix 1The Pioneering Funds

The pioneering funds Launchdate 1

Institution/fundname Fund(s) size

2 Fund focus

1994 Emerging MarketsPartnership GlobalUS$6bn across elevenfunds

Emerging markets, all sectors. Different fundstarget different regions.

1994 Hastings FundManagement US$4.3bnIndustries transportation & utilities; has funds thatare publicly traded

1997 Barclays PrivateEquity~US$1.94bn acrossfive funds

Greenfield and brownfield infrastructure; focus onenergy infrastructure

~1997 Macquarie~US$22bn undermanagement acrossmultiple funds

Focus on transportation, water, telecom and utilities

1997 AMP CapitalInvestors A$3bn (~US$2.5bn)across eight funds Focus on utilities, transport and social infrastructure

2001 Galaxy Fund 175m (~US$231m) Transportation; airports; regional focus on Europe

2002 Babcock & BrownInfrastructure Fund A$6.3bn (~US$5.25bn)Focus on energy distribution and transport; ASXlisted; Babcock & Brown also have a number ofother specialty funds for wind, power,environmental investments and PPPs

1 Approximate launch dates are based on historical records available on fund websites. 2 Approximatefund(s) sizes are \based on self-reported data available on fund websites. As at mid-2007

Source: The rise of infrastructure funds, Ryan J Orr, PhD, Executive Director, Collaboratory for Research onGlobal Projects, Stanford University, 13 Jun 07



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Appendix 2Structure of Australia-listed Infrastructure Funds

Entity IPO Manager StructureManagement Agreement

SpecialVotingShares

Alinta Infrastructure (AIH) 2005Wholly-owned subsidiary of Alinta

LimitedOne Australian

company; two trustsOpen-ended No*

Australian Infrastructure Fund (AIX) 1997Hastings Funds Management Limited(wholly-owned subsidiary of Westpac)

One Australiancompany; one trust

Open-ended No**

Babcock & Brown Capital Limited(BCM)

2005Wholly-owned subsidiary of Babcock &

Brown LimitedOne Australian

company25 years No

Babcock & Brown EnvironmentInvestments (BEI)

2005Wholly-owned subsidiary of Babcock &


company26 years No

Babcock & Brown Infrastructure (BBI) 2002Wholly-owned subsidiary of Babcock &


company;one trust25 years Yes

Babcock & Brown Power (BBP) 2006Wholly-owned subsidiary of Babcock &


company;one trust26 years No

Babcock & Brown Wind Partners(BBW) 2005

Wholly-owned subsidiary of Babcock &Brown Limited

One Australiancompany; one

Bermudan company;one trust

25 years No

Challenger Infrastructure Fund (CIF) 2005Wholly-owned subsidiary of Challenger

Financial Services Group LimitedTwo trusts 10 years N/A

ConnectEast Group (CEU) 2004 Wholly-owned subsidiary of Macquarie Two trusts 6 years N/A

DUET (DUE) 2004 A company jointly owned (50-50) by

AMP Capital Investors and MacquarieOne Australian

company; two trustsOpen-ended Yes, 100%

Hastings Diversified Utility Fund(HDF)

2004Hastings Funds Management Limited(wholly-owned subsidiary of Westpac)

Three trusts Open-ended N/A

Macquarie Airports (MAP) 2002Two wholly-owned subsidiaries of

MacquarieOne Bermudan


Macquarie Capital Alliance Group(MCQ)

2005 Wholly-owned subsidiary of Macquarie



Open-ended Yes, 75%

Macquarie CommunicationsInfrastructure Group (MCG)

2002 Wholly-owned subsidiary of Macquarie



Open-ended Yes, 75%

Macquarie Infrastructure Group(MIG)

1996Two wholly-owned subsidiaries of

MacquarieOne Bermudan


Macquarie Media Group (MMG) 2005 Wholly-owned subsidiary of Macquarie



Open-ended Yes, 75%

Rivercity Motorway (RCY) 2006

Wholly-owned subsidiary of ABN Amro Australia + some management

involvement from Leighton MotorwayInvestments and Bilfinger Berger BOT)

Two trusts 5 years N/A

SP AusNet Group (SPN) 2005Wholly-owned subsidiary of Singapore

Power Two Australian

companies; one trust10 years No

Spark Infrastructure Group (SKI) 2005 A company jointly owned (50-50) by

Cheung Kong Infrastructure and RREFFInfrastructure (part of Deutsche Bank)

Two Australian

companies; oneBahaman company; onetrust

25 years Yes, 50%

Structure of ASX-listed infrastructure funds

*Sponsor Alinta Limited had the right to appoint two directors to the board of six so long as it retained a 15%holding in AlH

** There were two boards to consider: the board of the company in the stapled structure, and the board of theresponsible entity of the trust in the stapled structure Hastings Fund Management Limited. Security holdersvoted only on the election of directors to the companys board; the board of Hastings Fund Management Limitedwas appointed by its 100 per cent shareholder, Westpac. However, the board of the company had very limited powers limited to refusing an investment proposal outside of the terms of the trust deed, on a reasonable fear of bankruptcy. Key decisions were made by Hastings Fund Management Limited, the directors of which were notelected by AIX security holders.

Source: Infrastructure Funds: Managing, Financing and Accounting In Whose Interests, RiskMetrics Group,April 2008



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Appendix 3 Issues Raised on Infrastructure Funds

1. Sustainability - The stapled-security structure adopted by many funds allowed the payment ofdistributions out of capital. Many of the infrastructure funds paid distributions that were a substantial portion, or even in excess, of operating cash flow, in many instances exceeding the reported net profitfor the year.

2. High leverage - As part of their construct, infrastructure funds were highly leveraged. The structure ofdebt financing adopted by the funds was also often aggressive, with the liberal use of interest-onlyfacilities and short-term refinancing. Often, when refinanced, the new facilities were larger than thosethey replaced.

3. Expensive assets - The growth in size of listed infrastructure funds had escalated asset prices for thesetypes of assets. Aside from the natural price inflation created by competition for assets, the externallymanaged model also encouraged asset acquirers to calculate purchase prices based not only onsustainable returns on capital as a strategic or trade buyer would, or even on the potential disposal price but also on the level of fees able to be garnered over the (long) life of a management agreement, possibly inflating asset prices even further. In addition the asset purchase/disposal provided anopportunity for separate advisory, debt arranging and/or underwriting fees; hence it could give rise to perverse incentives for external sponsors, i.e. to keep going after the next deal, whether or not it wasactually yield accretive.

4. High fees - Fees derived from a wide range of management, advisory and financial services, that tendedto provide an incentive to increase a funds size. Over the years, there was a rising importance of feesthat were not performance-related and were within the control of the external manager, i.e. base fees,usually related to assets under management; and related party fees like fees for advisory, underwritingand debt arranging, usually related to deal.

5. Accounting and Governance issues

a. Infrastructure assets could be placed in an unlisted company held as a non-controlledassociate by the fund - under this structure, it was possible for the fund to report an increasein profit through revaluing its holding in the unlisted company;.

b. External manager had high level of board control through holding special shares, and wasdifficult to remove due to the special shares, contingent fees, 25-year agreements etc;

c. Insufficient independence of the listed fund from the sponsor, due to various management andfinancial agreements in place between the fund and the sponsors various subsidiaries;

d. Potential conflicts of interest in cases where sponsor/external manager sells assets from its own balance sheet to the publicly listed fund price at which the fund buys the asset would bedisclosed, but the original price paid by the sponsor would commonly not be disclosed;

e. Potential conflicts of interest due to one-way exclusivity arrangements where the fund was bound by the exclusivity agreement but the external manager was not e.g. sponsor-ownedmanager must be appointed as manager of each asset, but sponsor was under no obligation to present all investment opportunities in a particular asset class to the relevant fund, or even notto compete with the fund;

f. Remuneration model for some of the funds aligned interests of the executives managing thefunds with the external manager rather than the fund itself;

g. Potential conflicts of interest from the use of same audit firm as sponsor for some of the funds e.g. funds managed externally by Macquarie were audited by PricewaterhouseCoopers, theauditor of the Macquarie Group. The potential impact of losing Macquarie as a client couldcreate disincentives for the auditor to point out accounting issues related to thesponsor/external manager in the listed funds.

Source: extracted from Infrastructure Funds: Managing, Financing and Accounting In Whose Interests,RiskMetrics Group, April 2008



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Appendix 4The Subprime Effects

Burst of USHousing Bubble,

Increasing MortgageDelinquency

and Foreclosure

Massive write-downsfor

banks and other Investors

Drop of capitallevels of banksand hamperedrefinancing

Failures of banks and other

institutions

Single Government Actionsand Stock

Market Crashes

Loss of Confidence

betweencommercial

banks

Governmentand CentralBank

Intervention

Inability torefinancemortgages

Inability to meetinterest paymentsdue to ARMadjustments andworseningeconomy

Correction ofassociated riskexpectations on MBS

Rating downgradeson MBS

Higher capitalcharges

Valuation uncertaintyspreads from subprimeto all MBS

High bank debt levels Rising spreads and

increasing unwillingnessof investors to buy MBS

Banks, InsuranceCompanies &Hedge funds

Institutions, whichare dependent oncapital markets for refinancing

Liquidity of capital marketsseverely cut

back

Single Government Actions e.g. $ 700 bn Troubled Asset

Relief Program (TARP) Equity Markets worldwide

suffer severely Liquidity Issues stay unsolved Selected Banks and Insurance

Companies in USA, Europeand Asia in financial difficulties

Market for MBS collapsed Inter-bank lending dried up

further Banks and Insurance

Companies in severerefinancing problemsworldwide

Worldwide economicslowdown

Spreadscontinued toincrease

Bankruptcy of Lehman Brothers

Fannie Mae andFreddie Mactaken intoconservatorship

Northern Rock(GB) partlynationalized

Burst of USHousing Bubble,

Increasing MortgageDelinquency

and Foreclosure

Massive write-downsfor

banks and other Investors

Drop of capitallevels of banksand hamperedrefinancing

Failures of banks and other

institutions

Single Government Actionsand Stock

Market Crashes

Loss of Confidence

betweencommercial

banks

Governmentand CentralBank

Intervention

Inability torefinancemortgages

Inability to meetinterest paymentsdue to ARMadjustments andworseningeconomy

Correction ofassociated riskexpectations on MBS

Rating downgradeson MBS

Higher capitalcharges

Valuation uncertaintyspreads from subprimeto all MBS

High bank debt levels Rising spreads and

increasing unwillingnessof investors to buy MBS

Banks, InsuranceCompanies &Hedge funds

Institutions, whichare dependent oncapital markets for refinancing

Liquidity of capital marketsseverely cut

back

Single Government Actions e.g. $ 700 bn Troubled Asset

Relief Program (TARP) Equity Markets worldwide

suffer severely Liquidity Issues stay unsolved Selected Banks and Insurance

Companies in USA, Europeand Asia in financial difficulties

Market for MBS collapsed Inter-bank lending dried up

further Banks and Insurance

Companies in severerefinancing problemsworldwide

Worldwide economicslowdown

Spreadscontinued toincrease

Bankruptcy of Lehman Brothers

Fannie Mae andFreddie Mactaken intoconservatorship

Northern Rock(GB) partlynationalized

Source: Adapted from Refinancing Real Estate Loans Lessons to be learned from the Subprime Crisis,Professor Dr. Markus Rudolf, WHU Otto Beisheim School of Management, Professor Anthony Saunders,Ph.D.: New York University, Stern School of Business, February 2009



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intermediate and peaking power generation plants located across Queensland, New South Wales,Victoria, South and Western Australia, which were powered by a diversified fuel mix of coal, naturalgas and coal seam methane. BBP listed on the ASX on 11 December 2006, following an initial public

offering at A$2.50 per share. At the end of 2007, BBL held about 10% of BBPs shares. In Aug 2007,the acquisition of some of Alinta assets doubled BBPs capitalization and raised its gearing(debt/debt+equity) from 47% at listing to 95%.

Babcock & Brown Infrastructure (BBI) - Originally called Prime Infrastructure, with the DalrympleBay Coal Terminal (DBCT) in Queensland, Australia, as its foundation asset, Prime Infrastructure wasacquired by a Babcock-led consortium in September 2001 and listed on the ASX in Jun 2002 at thelisting price of A$1.00 per share. It then diversified into electricity generation by acquiring gas-firedand coal-fired power generators and wind farms in Australia, as well as energy distribution businessesin New Zealand and Tasmania. On 1 July 2005, it was restructured and renamed BBI, and by 2006, ithad become a widely diversified infrastructure fund which invested in three asset classes: EnergyDistribution and Transmission, Transport Infrastructure and Power Generation, with assets located in 9countries. At the end of 2007, BBL held about 8% of BBIs shares. The Alinta acquisition raisedBBIs capitalization from A$3.3 billion to A$3.7 billion, and raised its gearing from 67% to 76%.

Babcock & Brown Wind Partners (BBW) - BBW was an investment fund with a triple stapledstructure and an initial portfolio at the time of listing of 16 wind farms located in Australia, Europe andthe United States. It sold units of wholesale electricity generated by its farms, either into the local grid,or to utility companies through long-term off-take agreements. It was originally called Global WindPartners, a joint venture between BBI and BBL and was listed on the ASX on 28 October 2005 at$1.40 per share. The listing proceeds were used to expand the BBW portfolio through acquisitions inUS and Europe through the Babcock group pipeline, and through two separate Framework Agreementswith Spanish turbine supplier and developer Gamesa and German developer Plambeck. Under theagreements, as long as the deals met certain criterion, the developers were obligated to provide thedeals to BBW, and BBW was obliged to take them. The prices were locked in at the time of theagreements, which later became an advantage to BBW as the prices of wind farms in Europe climbed.In May 2007, BBW refinanced its business, aggregating all debt across all regions, at project, asset andcorporate level, into a single EUR1.79 billion (A$3.6 billion) facility with a 15-year amortising term(to 2022) 27 . At the end of 2007, BBL held about 12% of BBW.

Appendix 6 Example of Stapled Security Structure - BBP

Source: Babcock & Brown Power prospectus

27 Macquarie Research, 27 Feb 2009



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Appendix 7 Management Fees of Babcock Funds vs. Peers

Source: Deutsche Bank Company Research, 18 Jan 07.

NB: BBWs base fee should be based on Net Investment Value (NIV) as listed in its prospectus, not AdjustedMarket Cap. NIV = Adjusted market capitalization + debt + firm commitments of future investments cash book value of any assets which are externally managed



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Appendix 8Other Fees

BBP BBI BBW

Custodian fee 0.0125% of total assets of trust None 0.0125% of gross asset value oftrust

Responsible Entityfee

A$550,000 per annum,increased by annual changes inCPI

None A$500,000 per annum, increasedby annual changes in CPI

Manager Expense

A$6.2m first year, A$6.6msecond year, A$7m third year.Base amount subject to annualCPI increases and periodicincreases approved by relevantBoard. In addition, Managerentitled to be reimbursed forvarious out of pocket expenses

A$7.9 million first year, adjustedfor CPI increases annually. Inaddition, Manager entitled to bereimbursed for various out ofpocket expenses

A$6m per annum, adjusted forCPI increases annually. Inaddition, Manager entitled to bereimbursed for various out ofpocket expenses

Break fees

1/3 of the net value of anybreak, termination or similarfees received by BBP inconnection with a committedinvestment, payable to theManager

None

1/3 of the net value of any break,termination or similar feesreceived by BBW in connectionwith a committed investment,payable to the Manager

Financial advisoryfees under theExclusive Financial

Advi so ry Agreement

Market terms Market terms Market terms

Manager originationand dispos al feesunder theManagement

Agreement

Minimum fee of approx. 1.5% ofinvestment value* of asset,which can increase to approx4.6% depending on size andcomplexity of transaction

Not specified

Terms of agreement provided thatonce a minimum fee for a serviceprovided under the agreementwas set it could not besubsequently decreased.Minimum fee of 1.5% ofinvestment value of the target foracquisitions

Asset managementfees

Base fees of 0.8% per annum ofthe power asset's netinvestment value** is payable toBabcock and Brown Power

Asset Management Pty Ltd(BBPAM), if the Management

Agreement is terminated orBase fees and Incentive feesare no longer payable under theManagement Agreement

None

Wind farm asset management orsupport services fees at prevailingcommercial rates, not expected toexceed A$1.8m per annum inaggregate across the initialportfolio

EuropeanFramework A ssetsincentiv e fees

None None Amount of fee depends on thelevel of return for BBW

*investment value = capital invested plus the proportion of debt financing for the investment

**net invesetment value (NIV) = market capitalisation plus debt plus firm commitments of future investments less cash less bookvalue of externally managed assets

Source: BBP and BBW prospectuses, BBI annual reports, RiskMetrics



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Appendix 9Other Relevant Fund Details

BBP BBI BBW

Management Agreements

25 years. Fund had limited rights toterminate the Management

Agreements. Agreements wouldcontinue even if there was a change ofcontrol of fund, or if Responsible Entitywas removed and a new responsibleentity appointed. Fees underagreement would continue to bepayable


Agreements.


Agreements. Termination ofManagement Agreements not due tomaterial breach would result intermination payments linked to theunexpired length of the agreementand the fees payable under theagreement.

As set Manag emen t Ag reements(contingent fees)

25 years agreement betweenBabcock and Brown Power AssetManagement Pty Ltd (BBPAM) andeach power station. Agreement wouldcontinue even if there was a change ofcontrol of fund, or if Responsible Entitywas removed and a new responsibleentity appointed. Fees payable toBBPAM if Management Agreementterminated

NA NA

Exclusive Financial Ad vi so ry Ag reement

10 years. Fund had limited rights toterminate agreement



One-way exclusiv ity

Exclusive management and financialadvisory agreements with externalmanager but funds had no right of firstrefusal on investments

Exclusive management andfinancial advisory agreements withexternal manager but funds had noright of first refusal on investments

Exclusive management and financialadvisory agreements with externalmanager but funds had no right offirst refusal on investments

Board not independentNo outright majority of independentdirectors

No outright majority of independentdirectors

No outright majority of independentdirectors

Chairman not independent Chairman was a BBL executive Chairman was a BBL executive Chairman was a BBL executive

Remuneration of keyemployees

Long-term incentive program linked toBBL, not BBP

Long-term incentive program linkedto BBL, not BBI

Long-term incentive program linkedto BBL, not BBW

Related party transaction s

Only independent non-executivedirectors make decisions for relatedparty deals. Any fees paid to B&Bgroup required approval byindependent non-executive directors

Fees paid to related partiesrequired approval by independentnon-executive directors

Fees paid to related parties requiredapproval by independent non-executive directors

External Audito r Diff erent auditor f rom BBL Diff erent auditor from BBL Diff erent auditor from BBL

Special voting s hares NA

External manager held twoconvertible loan notes that at theoption of the independentdirectors of the company convertedinto special voting shares thatwould give external manager theright to appoint 75% of thedirectors of the company

No

Source: BBP and BBW prospectuses, BBI annual reports, RiskMetrics



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Appendix 10 Debt Profile of BBL

Source: Babcock & Brown interim results report

Appendix 11 Arrangement of the Use of the Proceeds from BBSN1/BBSN2

Source: Babcock & Brown Notice of Meeting of Noteholders, Explanatory Memorandum and Offer Document,13 Mar 09



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Appendix 12Some Terms of the BBSN Notes

Source: Babcock & Brown BBSN presentation



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Appendix 13Timeline

Date Entity Event2004 BBL Listed on the ASX at A$5 a share

2005 BBLSecured a corporate debt facility of up to A$820m, issued first series of public debt securities (BBSN). Sharesfinished year at A$18, having touched nearly A$22

2006 BBLIncreased corporate debt facility to A$1b and then again to A$1.32b. Issued more BBSN notes in NZ and Australia.Shares closed year at A$26

2007 BBLIncreased corporate debt facility to A$2.35b. Bought Alinta. Bull market sent share price to just over A$34, valuingBBL at A$12b. Global financial crisis and debt concerns started share slide. Shares ended year at just under A$18

Feb-08 BBL 2008 profit guidance of A$750mFeb-08 BBW Announces strategic initiatives to unlock portfolio value through sales of European assetsMar-08 BBL Increased corporate debt facility from A$2.4b to A$2.8b. Share price under A$15Mar-08 BBW Successful syndication of EUR1.69b global corporate facilityMay-08 BBL Re-affirms 2008 profit guidance of A$750m

22-May-08 BBP

Shock announcement that BBP only managed to refinance A$2.7b of A$3.1b needed, with additional A$275m capexfunding shortfall. BBL offered to lend A$360 million. Varanus Island plant explosion affected gas supplies to Alinta's

customers, impact on BBP earnings

12-Jun-08 BBLShorting of BBL pushed market cap below A$2.5b threshold triggering bank review. BBL continued to reiterate profitguidance of A$750m

20-Jun-08 BBP Canceled 2H08 distribution and decided future distributions to be covered by operating cashflow

Jun-08 BBL Board looks for equity investor to shore up company. Jim Babcock asks directors to consider group's solvency.Jun-08 BBI Capital management review which could include sale of assets or cut in distributionsJul-08 BBP UBS engaged for strategic review of BBP businesses

11-Aug-08 BBL 10 days before results, BBL gave earnings downgrade warning that A$750 profit guidance would not be met

18-Aug-08 BBP Announced A$452 impairment charge to Alinta assets. Total drawn debt A$3.7b, market cap at A$181.6m. Debtexposure to BBL A$380m. Future distributions subject to paying down A$3.7b in debt.

21-Aug-08 BBLBBL announced that its first half profits collapsed 30%. Phil Green stepped down as CEO, replaced by MichaelLarkin. Jim Babcock stepped down as Chairman. Plans to shrink BBL

Aug-08 BBP Fired CEO and CFO, and 2 directors appointed by BBL. Review of management agreement with BBL

Aug-08 BBW Agreement to sell Spanish portfolio as part of strategic initiative to unlock portfolio profit at A$266m

Sep-08 BBL Phil Green resigned as Board director and sold remaining shares.Sep-08 BBW Announced on-market share buyback up to 10% over 12-mth period

Oct-08 BBPLooking for a buyer after UBS strategic review. Corporate governance changes to board and fees, and given right toobtain independent financial advice

Oct-08 BBI Corporate governance changes in composition of board and fees.19-Nov-08 BBL BBL announced that it may have breached loan covenants and put on trading halt

Nov-08 BBWagreement with BBL, internalised management and acquired some wind assets from BBL. Shareholders approvebuyback of shares, increasing from 10% to 30%.

Dec-08 BBL 1 year A$150m facility extended by banks while banks and BBL discussed debt workout

Dec-08 BBW Separated from BBL after paying A$44m to terminate management and exclusive financial management agreementsJan-09 BBL Announced it was in "substantial negative net asset position". Shares still suspended

6-Feb-09 BBL Debt restructuring agreement reached. Offer to BBSN holders to buy them outMar-09 BBL BBSN holders reject offer, BBL put in administration. Shares suspended at 32.5 cents

Apr-09 BBWChanged name to Infigen Energy, buying back 30% of shares, selling off remaining European farms andconcentrating on growth market of US and Australia, terminated Gamesa and Plambeck framework agreements

Jun-09 BBL BBL shares de-listed from ASXJun-09 BBP A$2.96 billion in borrowings, market value A$55.2m

26-Aug-09 BBI

Announced internationalisation of management and separation from BBL. Posted full-year loss of A$997.1m due to A$895.1m asset impairment. Made no mention of default risk on debt coming due in the discussion on capitalmanagement

Aug-09 BBL Creditors vote for liquidation

Oct-09 BBIDespite asset sales over past 18 mths, likely to breach debt covenants. Debt of A$9b, with A$300m corporate debtfacility due Feb 2010. Looking for equity injection from cornerstone investor

Nov-09 BBIShareholders approved A$1.8b recapitalisation with cornerstone investor Brookfield Asset Management Inc to own40%.

Dec-09 BBPDeal to pay B&B International A$444m in debt and fees to clear debt and end all management agreements. Rolledover A$2.7b worth of debts. Distributions likely to be in cash-lockup in the short term in order to meet debt repayment

Source: newspapers, analyst reports



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Appendix 14a Datasheet 1

Worksheet ABBREV Variable Name Ccy Data starts Source Industry Co./Trust ListedStock Prices BBL Babcock & Brown Limited AUD Oct-04 Bloomberg Infrastructure Company Australia& Indices BBI Babcock & Brown Infrastructure (now Prime Infrastructure) AUD Oct-04 Bloomberg Infrastructure Stapled Security Australia

BBP Babcock & Brown Power (now Alinta Energy) AUD Dec-06 Bloomberg Infrastructure Stapled Security AustraliaBBW Babcock & Brown Wind Partners (now Infigen Energy) AUD Oct-05 Bloomberg Infrastructure Stapled Security AustraliaCIF Challenger Infrastructure Fund AUD Aug-05 Bloomberg Infrastructure Stapled Security AustraliaHDF Hastings Diversified Utility Fund AUD Dec-04 Bloomberg Infrastructure Stapled Security AustraliaMAP Macquarie Airports AUD Oct-04 Bloomberg Infrastructure Stapled Security AustraliaMIG Macquairie Infrastructure Group AUD Oct-04 Bloomberg Infrastructure Stapled Security AustraliaSPN SP Ausnet Group AUD Dec-05 Bloomberg Infrastructure Stapled Security AustraliaSKI Sparks Infrastructure Group AUD Dec-05 Bloomberg Infrastructure Stapled Security Australia

ASX200 ASX 200 Index AUD Oct-04 Bloomberg IndexS&P500 S&P 500 Index USD Oct-04 Bloomberg IndexMSCI_W MSCI World USD Oct-04 Bloomberg IndexS&P_GI S&P Global Infrastructure Index USD Oct-04 Bloomberg InfrastructureMQ_GI Macquarie Global Infrastructure Index USD Oct-04 Bloomberg InfrastructureUBS_GUI UBS Global Utilities & Infrastructure 50-50 Index USD Oct-04 Bloomberg InfrastructureDJ_AeroDef Dow Jones Aerospace & Defense Index USD Oct-04 Bloomberg IndexDJ_AutoParts Dow Jones Automobiles & Parts Index USD Oct-04 Bloomberg Index

DJ_Banks Dow Jones Banks Index USD Oct-04 Bloomberg IndexDJ_Bev Dow Jones Beverages Index USD Oct-04 Bloomberg IndexDJ_PharmBio Dow Jones Pharmaceutical & BioTech Index USD Oct-04 Bloomberg IndexDJ_Media Dow Jones Media Index USD Oct-04 Bloomberg IndexDJ_ConMat Dow Jones Construction Materials Index USD Oct-04 Bloomberg IndexDJ_Chem Dow Jones Chemicals Index USD Oct-04 Bloomberg IndexDJ_GenFin Dow Jones General Financials Index USD Oct-04 Bloomberg IndexDJ_EE Dow Jones Electronics and Electrical Equipment Index USD Oct-04 Bloomberg IndexDJ_Electr Dow Jones Electricity Index USD Oct-04 Bloomberg IndexDJ_O&G Dow Jones Oil & Gas Producers Index USD Oct-04 Bloomberg IndexDJ_OilEqu Dow Jon es Oil Eq uip me nt, Se rv ices & Distribu tion In de x US D Oct-0 4 Blo om be rg Ind exDJ_Ftel Dow Jones Fixed Line Telecoms Index USD Oct-04 Bloomberg IndexDJ_FoodPro Dow Jones Food Producers Index USD Oct-04 Bloomberg IndexDJ_F&D Dow Jones Food & Drug Retailers Index USD Oct-04 Bloomberg IndexDJ_Forest Dow Jones Forestry & Paper Index USD Oct-04 Bloomberg IndexDJ_GWU Dow Jones Gas, Water & Multi-Utilities Index USD Oct-04 Bloomberg IndexDJ_HealthEq Dow Jones Health Equipment & Services Index USD Oct-04 Bloomberg IndexDJ_HH Dow Jones Household Goods Index USD Oct-04 Bloomberg IndexDJ_IndEng Dow Jones Industrial Engineering Index USD Oct-04 Bloomberg Index

DJ_IndTransDow Jones Industrial Transportation Index USD Oct-04 Bloomberg Index

DJ_GenInd Dow Jones General Industrials Index USD Oct-04 Bloomberg IndexDJ_Retail Dow Jones General Retailers Index USD Oct-04 Bloomberg IndexDJ_Nlife Dow Jones Non-Life Insurance Index USD Oct-04 Bloomberg IndexDJ_Lins Dow Jones Life Insurance Index USD Oct-04 Bloomberg IndexDJ_Leisure Dow Jones Leisure Index USD Oct-04 Bloomberg IndexDJ_IndMetals Dow Jones Industrial Metals Index USD Oct-04 Bloomberg IndexDJ_Mining Dow Jones Mining Index USD Oct-04 Bloomberg IndexDJ_RE Dow Jones Real Estate Index USD Oct-04 Bloomberg IndexDJ_Tech Dow Jones Tech Hardware & Equipment Index USD Oct-04 Bloomberg IndexDJ_Software Dow Jones Software and Computer USD Oct-04 Bloomberg IndexDJ_PersGood Dow Jones Personal Goods Index USD Oct-04 Bloomberg IndexDJ_Tobac Dow Jones Tobacco Index USD Oct-04 Bloomberg IndexDJ_Mobile Dow Jones Mobile Telecom Index USD Oct-04 Bloomberg IndexDJ_Travel Dow Jones Travel & Leisure Index USD Oct-04 Bloomberg Index

Bond Yields AUS_3m Australian 3m interbank rates AUD Oct-04 Bloomberg AUS_10Y Australian 10 yr government bond AUD Oct-04 BloombergUS_3m 3 month US$ interbank rate USD Oct-04 BloombergUS_10Y 10 year US Treasury Yield USD Oct-04 Bloomberg

Currencies AUDUSD USD per AUD AUD Oct-04 Bloomberg



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Appendix 14b Datasheet 2

Worksheet ABBREV Variable Name CCY Data starts Source Industry Co./Trust ListedStock Indices ASX200 ASX 200 Index AUD 6-Oct-04 Bloomberg Index

S&P500 S&P 500 Index USD 6-Oct-04 Bloomberg IndexMSCI_W MSCI World USD 6-Oct-04 Bloomberg IndexS&P_GI S&P Global Infrastructure Index USD 6-Oct-04 Bloomberg InfrastructureMQ_GI Macquarie Global Infrastructure Index USD 6-Oct-04 Bloomberg InfrastructureUBS_GUI UBS Global Utilities & Infrast ructure 50-50 Index USD 6-Oct-04 Bloomberg Infrastructure

Stock Prices BBL Babcock & Brown Limited AUD 6-Oct-04 Bloomberg Infrastructure Company AustraliaBBI Babcock & Brown Infrastructure (now Prime InfrastAUD 6-Oct-04 Bloomberg Infrastructure Stapled Security AustraliaBBP Babcock & Brown Power (now Alinta Energy) AUD 8-Dec-06 Bloomberg Infrastructure Stapled Security AustraliaBBW Babcock & Brown Wind Partners (now Infigen Ene AUD 27-Oct-05 Bloomberg Infrastructure Stapled Security AustraliaCIF Challenger Infrastructure Fund AUD 18-Aug-05 Bloomberg Infrastructure Stapled Security AustraliaHDF Hastings Diversified Utility Fund AUD 10-Dec-04 Bloomberg Infrastructure Stapled Security AustraliaMAP Macquarie Airports AUD 6-Oct-04 Bloomberg Infrastructure Stapled Security AustraliaMIG Macquairie Infrastructure Group AUD 6-Oct-04 Bloomberg Infrastructure Stapled Security AustraliaSPN SP Ausnet Group AUD 13-Dec-05 Bloomberg Infrastructure Stapled Security AustraliaSKI Sparks Infrastructure Group AUD 15-Dec-05 Bloomberg Infrastructure Stapled Security Australia

Bond Yields AUS_3m Australian 3m interbank rates AUD 6-Oct-04 Bloomberg AUS_10Y Australian 10 yr government bond AUD 6-Oct-04 BloombergUS_3m US 3 mth interbank rates USD 6-Oct-04 BloombergUS_10Y US 10 yr Treasury USD 6-Oct-04 Bloomberg

Currencies AUDUSD USD per AUD AUD 6-Oct-04 Bloomberg

Appendix 14c Datasheet 3

Worksheet Data Period Source

BBL Balance Sheet, Income Statement, Cash Flow Statement 2004-2007 ThomsonOneBBI Balance Sheet, Income Statement, Cash Flow Statement 2005-2009 ThomsonOneBBP Balance Sheet, Income Statement, Cash Flow Statement 2005-2009 ThomsonOneBBW Balance Sheet, Income Statement, Cash Flow Statement 2005-2009 ThomsonOneCIF Balance Sheet, Income Statement, Cash Flow Statement 2006-2009 ThomsonOne

HDF Balance Sheet, Income Statement, Cash Flow Statement 2004-2008 (2009 annual report not ready) ThomsonOneMAP Balance Sheet, Income Statement, Cash Flow Statement 2004-2008 (management internalized in 2009) ThomsonOneMIG Balance Sheet, Income Statement, Cash Flow Statement 2005-2009 ThomsonOneSPN Balance Sheet, Income Statement, Cash Flow Statement 2005-2009 ThomsonOneSKI Balance Sheet, Income Statement, Cash Flow Statement 2006-2008 (2009 annual report not ready) ThomsonOne

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