PaperlinX rejects $260m breach claim

The fallout continues for PaperlinX following the collapse of its European operation, with the paper merchant dismissing claims that it breached terms involving $260 million worth of hybrid securities.

New York-based hedge fund Blue Pacific Partners last week wrote a letter to the PaperlinX board of directors claiming that its lawyers, Australian law firm Corrs Chambers Westgarth, believed that the terms of the hybrid notes had been breached and could trigger a conversion of the notes into common equity, which would give the note holders a 94 per cent ownership in the company.

The alleged breach relates to two relatively minor transactions – the buyback of $100,000 worth of shares in 2013 and $300,000 of shares in 2014.

"Blue Pacific continues to believe the buybacks that occurred had an anti-dilutive effect to ordinary shareholders, which is directly beneficial to ordinary shareholders and not beneficial to [hybrid holders] using consideration ultimately provided by PaperlinX," a spokesperson for the hedge fund told Fairfax Media. "Blue Pacific will happily retract our claim if clear evidence is made available to us that a breach has not occurred."

In a brief statement to the ASX, PaperlinX said the allegations were ‘misconceived’:

We refer to media coverage in today’s press in relation to a suggestion by a hybrid unit holder of a possible breach by the Company of the SPS undertakings. The hybrid unit holder’s suggestion is misconceived. The Company denies the accusations and if proceedings are initiated, will defend its position vigorously.

Blue Pacific and another US hedge fund, Coastal, are believed to be the largest holders of the $260 million of outstanding hybrid securities.