Blue Star owner tries to sweeten deal for irate bondholders
By Paul McBeth
Aug. 3 (BusinessDesk) – Blue Star Group’s private equity owner is trying to sweeten a deal for bondholders facing a haircut as they seek to restructure the printing group’s debt and avoid receivership.
Australia’s Champ Private Equity will give bondholders the opportunity to buy into the $15 million loan it will make to Blue Star under the deal on a pro rata basis, plus oversubscriptions. The printing group’s owner will also convert $10 million of subordinated debt, plus $2.7 million of interest, into equity.
The sweetener comes after bondholders reacted angrily to a proposal that would see their $105 million of debt split into two tranches of new debt. One tranche, making up 64% of the debt, would have its interest return cut to 9.1%, beginning from July 2013. That reduces the annual return by 4 percentage points.
The rest of the debt wouldn’t pay interest, and could only make a return if Blue Star made a dividend payment to the shareholder, of which bondholders would get a fifth.
The reason bondholders got upset was that the new Champ loan is paying a higher interest rate and would rank above their new debt. The loan, which Champ is offering to convert into equity, would also have ranked ahead of the 34% tranche of debt.
Last week, Blue Star tried to plead its case, saying there was no alternative to the offer and that receivership loomed if bondholders didn’t accept.
Still, having already had their interest payments frozen in 2009 and being told by KPMG that the deal wasn’t fair on bondholders, bondholders have rallied against the offer.
Even if the deal is agreed to by three-quarters of bondholders next week, KPMG’s independent report said full repayment is unlikely and that Blue Star is a high risk investment.
The bonds last traded on Aug. 1 at a yield of 500%, shooting up from 185% when the deal was offered in July.