Only need 100 words answer or more.

Read the extract below from Wikipedia or read Accounting Headline 7.8. Babcock and Brown had negotiated an agreement with lenders that its market capitalisation would not fall below an agreed amount of $7.50 per share. However, the share price dipped below this agreed amount, meaning that the lenders could demand repayment of the funds if they choose to invoke their right to do so. From a PAT theory perspective, why would Babcock have agreed to this market capitalisation requirement rather than other types of covenants, such as a restriction on the organisations total liabilities to total tangible assets? Further, why would the banks have negotiated to have this market capitalisation agreement included within the debt agreement?

Babcock & Brown was a global investment and advisory firm based in Sydney, Australia that went into liquidation in 2009. It was best known in financial markets for structured finance deals. The company had at its peak 28 offices and over 1,500 employees worldwide. Although headquartered in Sydney, it had a significant presence in Europe and the United States. The creditors of Babcock & Brown voted to place the company into liquidation on 24 August 2009. At the end of 2008 Babcock had a market capitalisation of just over $8.5 billion, and in 2007 its market capitalization peaked at above $9.1 billion (A$33.90 per share). However, by October 2008 the share price had collapsed by 95% to A$1.30^[1] and by December 2008 by 99.6% to A$0.14, representing a market capitalisation of less than $50 million. On 13 March 2009 the company was placed into voluntary administration.^[2] Approximately 45% of its shares were owned by the executives of the firm. Nicknamed the "Mini Macquarie",^[3][4][5][6] it was a company frequently compared with larger competitor Macquarie Bank.

History: The Company was founded in 1977 by James Babcock and George Brown in San Francisco, USA. Babcock opened a Sydney office in 1982 and largely operated as a corporate advisory firm focused on leasing of aircraft and other equipment until the early 1990s. B&B entered the real estate market in Sydney, at that time enjoying considerable success. Jim Babcock resigned from the board of directors on 1 November 2008 citing personal reasons.^[7]The company's focus from advisory work to investment management continued until a German bank Bayerische Hypo und Vereinsbank invested US$120 million in return for a 20% stake. It used those funds and third-party funds they raised from clients to invest directly in a wide variety of investments, as both co-investor and principal.

Organizational structure: The investment firm latterly regarded its three business functions as financial advisory, principal investment on its own account, and funds management. It was a global business with 33% of its revenues coming from the United States, 31% from Australia, and 36% from Europe. In 2005 its real estate group generated 36% of the company's net revenue. This division made investments on behalf of the company itself, and also of property-focused managed funds that it had organised. It had considerable success in property investments in Japan and Germany. In infrastructure and project finance, an area in which Macquarie Bank is probably best known in Australia, emerged as a significant investor in a range of power, transport, water and public-private partnerships (PPPs). Starting out in England with PPP projects, this part of B&B's business generated 24% of the company's net revenue. In 2004 it established Prime Infrastructure, an ASX listed infrastructure fund containing coal distribution and related assets. It also had an operating leasing business (Babcock & Brown Aircraft Management), listed in NY under the ticker symbol FLY [2], which generated 24% of net revenue and managed around 300 leased commercial jets for airline clients, in a portfolio worth approximately US$8.1 billion on 1 June 2008, one of the largest portfolios of commercial jets in the world. As of March 2009^[update] FLY did not appear to have been materially affected by the problems at B&B [3]. Babcock and Brown Air changed its name to FLY Leasing in February 2010. The senior management of FLY Leasing's manager (Babcock and Brown Aircraft Management) completed a MBO of Babcock and Brown's aircraft leasing business in April 2010. The company was renamed BBAM LLC [4] and continues to manage a portfolio of over 450 commercial aircraft (including the 107 aircraft owned by FLY Leasing). B&B's "bread and butter" business was its role as an adviser in structured finance, including leases, debt placement for large leases, hedging, securitisation for businesses looking to lease equipment essential to their business in the most tax-effective and low cost way possible. In addition to its operating leasing business which actually finances such equipment, B&B was one of the world's leading advisers in that space as well, putting it in a strong market position. It was considered the market leader in the United States and the United Kingdom in this area. The structured finance advisory business generated 23% of the company's net revenue. The company had a highly successful listing on the Australian Stock Exchange in 2004 where it raised over $550 million in new capital. Subsequently though the company became a high-profile victim of the credit crunch, suffering the inevitable consequence of a balance sheet stuffed with long-term illiquid assets such as real estate, shareholdings in related businesses, private equity transactions all financed by short term debt. When, inevitably, this debt proved to be unrefinanceable the company entered an irreversible spiral of decline. Nevertheless some aspects of B&B's business, particularly the infrastructure related activities were well-founded and have re-emerged from the B&B collapse. These include B&B's successful wind energy business, now called Infigen and listed on the ASX; Prime Infrastructure, which was acquired by Brookfield; and B&B's well regarded public-private partnership business, which has been acquired from B&B and trades as Amber Infrastructure Group, headquartered in London.

Acquisitions: In August 2006 managed fund Babcock & Brown Capital announced that it had completed a 65% acquisition of Irish telecommunications company Eircom, with its partner the Eircom Employee Share Ownership Trust Limited (ESOT) holding the remaining 35% of Eircom Group. In March 2007 Babcock & Brown led a consortium to attempt to buy the Australian energy company Alinta Ltd. The takeover by a scheme of arrangement was supported by the Alinta Board. In the Irish Independent newspaper ^[8] it was reported that Babcock and Brown were planning to break up Eircom. Retaining the core backbone Network Wholesale Division and selling the Eircom Retail and Mobile (Meteor) Divisions. It was reported that the retail arm of Eircom could be worth 1bn and Meteor around 800m.

Debt problems: Babcock shares fell 27% on 12 June 2008 due to fears about the debt levels of it and its various satellite funds. The plunge triggered a debt covenant when its market capitalisation fell below A$2.5 billion (roughly equivalent to a share price of $7.50), allowing its lenders to review the company's financing arrangements.^[9][10] Some of the satellite funds, which have suffered similar falls in share price, have responded by cutting their dividends and selling assets in order to repay debt.^[11] On 19 August 2008, the company's stock price was down 23.5% due to speculation about being forced to sell assets to cover bad debts, and caused the company to place itself into a trading halt and receive a price query from the Australian Stock Exchange. The company then announced board and management changes, including the stepping down of CEO Phil Green, and noting a sharp 30% drop in profit and the announcement of no dividends.^[12] On 21 August 2008, its share price collapsed a further 36% to end at $2.22, a record low. In September the company commenced selling some of its non-core businesses and assets and reducing its workforce in order to streamline its operations. On 4 December it was announced that Babcock and Brown had been granted a $150 million loan from its 25 bankers and had the covenants on its outstanding debt removed,^[13] conditional on production of a satisfactory revised business plan. Pending resolution, a trading halt was put in place on 8 January.^[14] A statement on 23 January 2009 announced "the Board believes that in the current market environment and based on continuing discussions with the banking syndicate there will be no value for equity holders under the revised business plan and balance sheet restructure of Babcock & Brown International Pty Ltd and negligible or no value for holders of the Company's subordinated notes."^[15] The banking syndicate is dominated by European institutions, with Australia's four major banks holding aggregate exposure estimated at about $800 million.^[16] The company went into voluntary administration in March 2009 after unsecured bondholders voted against a debt restructuring plan that would value their claims at 0.1 cents in the dollar. The rejection rendered the company insolvent because it could not meet interest payments.^[2]