Blue Star investors vote on restructure

About 200 Blue Star bond holders are gathered in Auckland to vote on a controversial restructure of their $105 million worth of existing subordinated capital bonds.

Under the proposal senior lenders owed about $195 million have agreed to extend the facility and inject a further $10 million of working capital.

Shareholder Champ Funds has agreed to 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.

For the package to work bondholders must vote in favour of an amended offer for their capital.

This will see them swap their existing bonds into two different 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.

A report from KPMG said a no vote will likely result in receivership as the banks work to protect their position. However, there is no guarantee that if the proposal goes ahead Blue Star will survive.

The bondholders, who are forced to write off $32.5 million of unpaid accrued interest, are upset that the new loan from shareholder Champ pays such an attractive interest rate and ranks ahead of their bonds.

Champ has since agreed to offer bondholders the chance to subscribe for shareholder loan notes on the same terms and conditions of major shareholder Champ Funds.

In correspondence to bondholders, 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.

Director Roger France kicked things off with a brief presentation.

“I know this is not a great deal for bondholders,” he said, adding that the proposal was on the back of months of “brutal” negotiations between the board and the banking syndicate, led by BNZ.

“It gives me no pleasure presenting this. However, unpalatable as it is, I’m satisfied this is the best deal that could be negotiated at this time.”

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.”

Bondholders will begin questions shortly.