Blue Star board grilled as bondholders decide future

Bondholders with $105 million tied up in printing group Blue Star are venting their anger and frustration at a proposal to recapitalise the company that will see their rights diminished significantly.

At the same time, Blue Star’s New Zealand chief executive is pleading for them to vote in favour and save the company from receivership and the potential loss of 1800 staff in New Zealand including more than 400 under his control.

Blue Star needs urgent cash and time to lift its operating performance which has suffered from the economic downturn in the sector. Its banks have agreed to extend the senior facility for three years and provide $10 million in working capital, while major shareholder Champ will put in a further $15.7 million loan note.

But bondholders have baulked at the proposal which will see them forgo $32.5 million of unpaid interest and swap their bonds into two tranches in the hope that a lift in performance will result in getting some or all of their money back, while Champ's new loan sits ahead of their bonds and fetches 18.5% interest.

The problem is the proposal is not viewed as fair to bondholders, who are also losing subordinated guarantees and the trustee will no longer be required to consent to the sale of a majority stake in the operating companies.

Shareholders Association chairman John Hawkins, who is holding a small amount of proxies for bondholders, made several points in urging bondholders to vote against the plan on principle.

He said the bondholders had not been well served by their trustee, Perpetual, and the only parties to benefit are the banks, including the BNZ, Commonwealth Bank of Australia and Bank of Scotland.

Mr Hawkins claimed that a new clause in Blue Star’s trust deed could see the banks move to sell off bits of the business as a going concern at a better rate than under a receivership scenario.

He said bondholders should send a message to the Blue Star board that they do not like being “skinned” and suggested the banks might come through with a different plan if it doesn’t go ahead.

Blue Star director and chair of the meeting Roger France said Mr Hawkins was wrong because the banks couldn’t sell anything unless the covenants were breached.

Under the new arrangement more flexible covenants will be put in place and Blue Star would have 15% headroom with which to work in.

“We are here because the board believes we can get some money back for you.”

Mr Hawkins interrupted to point out that he had actually said "subject to breaching covenants" and maintained the deal would only benefit the banks. 

"In our opinion it relates to the banks securing their position by giving them time and the ability to cherry pick the assets," he said.

Other bondholders referred to voting yes was a vote for hope, while no was a vote for principle.

Blue Star’s New Zealand chief executive David Jupe made an emotional plea for bondholders to vote yes to the proposal with his voice cracking as he addressed the audience.

“The last gentleman referred to hope. I lead a team of 600 people. Over the last year I’ve had to reduce that number by 190.Trust me that’s not easy. This is not a fat business.

“You talk about hope, this vote hangs on our suppliers and staff. What do I have at stake? 25 years of reputation.

“These people behind me are doing a job so you all have a chance. So when you are voting please don’t vote on principle.

“Trust m,e we do not wake up every day thinking about how to erode value.

Neil Stanton from Central Otago said he was extremely concerned about the proposal which was why he made the trip north.

“The independent report said clearly we were not being treated fairly. We are being used by the shareholder and we are being disempowered while the shareholder is being empowered.

"The future of the company should be in the hands of the shareholders to contribute more money. In this case they just want to nestle in as a senior lender above us.

I agree with John Hawkins. This is a matter of principle.”

Mr France said the bonds were not debentures and therefore not secured.

“They are the last cab off the rank. They don’t have rights. Champ does not have to put money in. This is all there is.”