Blue Star tweaks restructure proposal

Bondholder backlash forces Blue Star to amend controversial debt deal.

Disgruntled Blue Star bondholders are being offered a sweetener (of sorts) to participate in the print group’s restructure on the same terms as shareholders.

Following a backlash from bondholders to the company’s $25 million restructuring plan, Blue Star is now offering them the chance to subscribe for shareholder loan notes on the same terms and conditions of major shareholder Champ Funds.

Under the original proposal announced last month, Champ was to provide a loan of $15 million alongside an extra $10 million in working capital provided by the banks, lead by the BNZ.

But bondholders, who have been forced to forgive $32 million of interest and agree to revised principal terms, balked at new favourable terms being offered to Champ.

In particular they agitated over the accrued and compounding 18.5% interest rate offered to Champ and the fact that its loan would rank ahead of the $105 million worth of bonds.

Under the deal, bondholders have been asked to swap roughly two thirds of their $1 bonds into 64c “amended capital bonds” that start paying 9.1% in July 2013, and convert the remaining one third into “participating bonds” which do not bear interest but can convert to equity at a later date.

But last night Blue Star said bondholders could now also subscribe for the shareholder loan notes if they wanted to.

Under the new proposal Champ will effectively underwrite the full amount and should any bondholders take up the offer, the Champ contribution will reduce.

And in another change, Champ’s previous loan – $10 million plus interest – would be converted into equity.Blue Star has said that if bondholders don’t accept the proposal the company is likely to go into receivership.

The senior lenders have agreed to a waiver of a breach of covenants up until the date of the meeting relating to the amendment offer.If the banks pull the pin bondholders would be looking at a total loss on their investments.

"The Board's expectation is that, following a no vote, Blue Star's banks will immediately move to protect their interests, likely through the appointment of a receiver ... In this scenario, it is probable that there would be no value recovery for Bondholders," Blue Star said in a letter to investors last week.

A vote on the restructuring proposal is set down for August 10 at 10:30am.

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