Blue Star extra $25m depends on bondholder August vote
A new investment of NZ$15 million from Blue Star’s major shareholder, CHAMP PE, along with $15 million in working capital from its banks, requires financial concessions from beleaguered bondholders.
Described as taking a ‘haircut’ by NZ financial commentators, the proposal reflects the difficulties facing the trans-Tasman printing group. In effect the holders of $105 million bonds are being asked to sacrifice $32.3 million by converting 36% of their existing investment into participating bonds that attract no interest or have any repayment date.
The remainder, converted into $67.5 million of Amended Capital Bonds, will have their maturity pushed from 2012 to 2015 and revert to a non-penalty 9.1 per cent interest. Bondholders will also be asked to waive their deferred interest entitlement on existing bonds.
The bondholders face a bleak ultimatum from the board, which agrees with independent expert, that if the new deal is not approved at an August 10 meeting in Auckland, bondholders are likely to experience a total loss of capital as the business stands today. While this does not necessarily forecast the failure of Blue Star as a going concern, as Chris Mitchell, CEO, (pictured) puts it, if the deal is not accepted “the banks will likely focus on their own interests.
“Based on a lot of work with our bankers and shareholders, this is the only viable avenue for bondholders to get some or all of their capital back,” he said. “It maximizes the prospect of a full recovery of the $67.5m of bonds and a chance at a recovery of the remaining $37.5m.”
The extraordinary state of affairs comes as Blue Star gets up to $600 million in revenue, with forecast earnings of $53.6 million. It is in the process of bringing online a new multi-million dollar magazine printing plant in Auckland for its long-term ACP contract while commissioning the region’s first HP T-300 digital inkjet press in Silverwater, NSW. Blue Star employs 1800 personnel on both sides of the Tasman.
In a board statement the company says that despite an extremely difficult time for the industry over the past two years Blue Star believes it is withstanding the operational market challenges of the downturn better than most of its competitors.
The Board would prefer not to be in the position of asking bondholders to extend their maturity date for a further three years or to make other concessions. However, the current circumstances make this a necessity.
According to Chris Mitchell, the new arrangements will buy the company more time to gain the benefits of its forward-thinking Agile strategy and reduced cost base. However he acknowledges the tough conditions facing the company and the industry.
“I don’t think there are too many printing companies out there forecasting double digit growth. It is a sobering thought that with all of that hard work, we are forecasting a 26.5 per cent improvement in earnings by the end of FY12 and that will be just a little better … than we were in 2008 [$52.5m] going into the GFC.”
“Based on a lot of work with our bankers and shareholders, this is the only viable avenue for bondholders to get some or all of their capital back,” he said. “It maximizes the prospect of a full recovery of the $67.5m of bonds and a chance at a recovery of the remaining $37.5m.”