Blue Star bondholders give company another shot
By Paul McBeth
Aug. 10 (BusinessDesk) – Blue Star Group’s bondholders have voted to give the company another shot, by a slim margin, to return their money rather than risk receivership.
Some 76.9% of bondholders voted in favour of a deal that will see them miss out on interest repayments for another two years and convert 36% of their bonds into non-interest bearing hybrid securities. The deal needed 75% approval to get over the line.
“The board appreciates the decision of bondholders to give this company time to demonstrate that it can deliver on the repositioning and restructuring that it is undertaking to drive higher levels of earnings,” managing director Chris Mitchell said in a statement. “Improved performance is the key to bondholders receiving some or all of their investment back.”
The printing group sweetened the proposal last week by giving bondholders the opportunity to buy into the $15 million loan Australian owner Champ Private Equity will give to the company. Any bondholders taking a share of that debt will be on a pro-rata basis, plus oversubscriptions.
Champ will also convert $10 million of subordinated debt, plus $2.7 million of interest, into equity.
The private equity company said it was “pleased to continue supporting management in their implementation of Blue Star’s growth strategy, with the prospect of improved profitability, albeit in what is widely recognised as a very challenging industry.”
Some bondholders reacted angrily to the proposal, which will split their $105 million of debt into two new tranches, having already had interest repayments frozen in 2009.
The main tranche, totalling 64% of the debt, will pay a lower interest rate of 9.1%, starting from July 2013, and the hybrid tranche won’t make a return unless Blue Star pays a dividend.
The reason bondholders got upset was that the new Champ loan pays a higher interest rate and would rank above their new debt. The other Champ loan, which will convert into equity, would also have ranked ahead of the 34% tranche of bond.
Last month, Blue Star tried to plead its case, saying its lenders would force it into receivership if bondholders didn’t accept the offer.
KPMG’s independent report of the original offer said it wasn’t fair to bondholders and that full repayment was unlikely with Blue Star a high risk investment.
The NZDX-listed bonds traded today at 11.98 cents in the dollar, according to the NZX website.