Troubled printing group Blue Star has been handed a life line after its mainly Kiwi retail bondholders today voted in favour of a controversial $25 million funding package and restructure.
At a heated meeting in Auckland, about 200 bondholders anguished over whether to accept the proposal, which forced a number of significant concessions on them.
After the votes were counted the results showed 76.9% in favour of the refinancing proposal, surpassing the required 75% approval.
Blue Star managing director Chris Mitchell acknowledged that the decision had been difficult for Bondholders.
“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. Improved performance is the key to Bondholders receiving some or all of their investment back.”
“The company remains confident in its plan.”
For bondholders it was a bitter pill to swallow.
The concessions include writing off $32.5 million of unpaid accrued interest on their $105 million worth of bonds and swapping the principal into two tranches - $67.5 million of amended that don’t pay interest until 2013 and $37.5 million of “participating” bonds that don’t pay interest but can be converted into equity at a later date.
They also give up subordinated guarantees and the power of their trustee to consent to the sale of a majority stake in the operating companies. Blue Star has stressed that the company could go into receivership if the plan didn't go ahead, resulting in the potential loss of 1800 jobs here and in Australia.
The big sticking point was that major shareholder, private equity group Champ, was given priority ranking for its part in the funding package.
Under the deal senior lenders owed about $195 million have agreed to extend the term debt facility and inject a further $10 million of working capital.
Champ will kick in a further $15.6 million in cash in the form of a shareholder loan note that pays 18.5% and ranks below the bank debt but above the bonds.
While several bondholders expressed distaste at the proposal, which an independent report by KPMG said disadvantaged them considerably, others appeared resigned to the situation, figuring that a yes vote would at least provide some hope of getting their money back.
Under the terms of the Amendment Offer Bondholders will receive their first interest payment in October 2013.
Mr Mitchell said “the approval of the refinancing package means that a cloud has been lifted from the company. We now have the financial confidence to be able to move forward and deliver on our strategies. Our staff, suppliers and customers have been hugely patient through these difficult times and I thank them for their support.”
Blue Star has without doubt been struggling in an industry under a lot of stress brought about by historical steady declines in print volumes.
This has been driven by several factors including new online channels, environmental concerns and changing consumer needs, and has been accelerated by the global financial crisis.
Mr Mitchell pointed to recent wins such as the ACP printing contract as evidence the company was headed in the right direction.
“I’m sure it is frustrating for bondholders, but the simple truth of all this is we need to continue our repositioning strategy to allow the company to recover its earnings position. And that’s really the name of the game here – to provide that time for the earnings to improve, markets to recover, and in the fullness of time to give all of our stake holders to get some or all of their money back.”
Earlier today Champ representative Nat Childres acknowledged the tough decision facing bondholders. He pointed out that Champ is already underwater by $175 million from its equity investment when it bought the printing group in 2006.
“We did not take the decision to invest $15.7 million lightly. We did so because we believe Blue Star is positioned for turnaround.
Blue Star managing director Chris Mitchell said some tough decisions had been made but the bottom line was the company needed more time.
“We just can’t get there in the timeframes the debt maturities allow. We are asking for your support.
“We do believe this is the best chance of getting everyone in this room a good chance of getting all or a big chunk of their money back.”