Blue Star bosses bow to bond holder anger

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Blue Star Group's major shareholders have bowed to bondholder anger at their restructuring proposal and are now offering concessions to induce bondholders to support their plan.

Tuesday, August 2nd 2011, 11:16PM 2 Comments

by Jenny Ruth

Less than a week ago, Blue Star had been insisting its proposal was bondholders' only hope of getting at least some of their money back, even though its own documents show that is a long shot.

The only alternative, directors had said, was receivership for Blue Star which would make certain bondholders would lose all their money.

However, it appears bondholders were prepared to sink the company rather than approve the restructuring deal which was considerably more favourable to the shareholders than to the bondholders.

It remains to be seen whether the concessions will be sufficient to swing bondholder support behind the proposal, which asks bondholders to relinquish significant rights and to exchange the $137.3 million in principal and interest they're owed for a package with a net present value of $44 million with no certainty even that return can be achieved.

Under the original deal, bondholders' interests were to be divided in two.

The major shareholders, director Tom Sturgess and Australian private equity firm CHAMP who own 93.7% of Blue Star, would have provided a new

$15 million loan earning 18.05% annual interest which would have ranked ahead of the first tranche of bondholders' money, after bondholders had accepted the complete write-off of $32.2 million in unpaid interest.

By contrast, the first tranche of bondholders's money would earn zero interest until July 2013 from when it would start earning 9.1% a year.

Now Blue Star chairman and former New South Wales Premier Nick Greiner says the board is offering bondholders the "opportunity" to contribute towards the new $15 million loan. To the extent bondholders accept this offer, the amount CHAMP and Sturgess contribute would reduce.

However, to participate in this "opportunity," bondholders would first need to vote in favour of the restructuring proposal.

Under the original proposal, CHAMP and Sturgess would have earned 17.25% on an existing $12.7 million loan to Blue Star and that loan would have ranked ahead of the second tranche of bondholders' money.

Now, CHAMP and Sturgess are offering to convert that $12.7 million loan to equity. As under the original proposal, the second tranche of bondholders' money would be entitled to no interest whatsoever but would get 20% of Blue Star's eventual sale price while CHAMP and Sturgess would pocket the rest.

Tellingly, Greiner says: "bondholders can change their proxy vote at any time" ahead of the scheduled vote on Monday, August 8. Which suggests proxy votes have been running against the restructuring proposal.

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