Blue Star angers bondholders as investment likely to be worthless

The trans-Tasman group yesterday shed more light on the sale process, stressing it had the continuing support of major shareholder Champ Private Equity as well as the banks.

Managing director Philip Bower told ProPrint that the group would be sold as a going concern.

However, in a statement, Blue Star conceded that “financial performance remains well below” the forecast made during last year’s debt restructure.

Blue Star has already admitted it would not generate the 26.5% earnings growth required to reach a full-year EBITDA of NZ$53.6 million – a crucial figure in winning approval from its bondholders during the restructure.

The company is now in full-blown sales mode, having enlisted Goldman Sachs to oversee the process, and it looks unlikely that bondholders will see a return unless the successful takeover bid exceeded the company’s debt, totalling nearly NZ$250 million.

“In light of the sale process, the board is unsure whether any value will attach to the group’s NZDX-listed bonds,” said the Blue Star statement.

According to a report in the Australian Financial Review, the sale is hoped to net $100 million to $150 million.

The chairman of the New Zealand Shareholders Association, John Hawkins, told ProPrint the news was “extremely disappointing, but it’s not unexpected”.

He said Blue Star had won bondholders’ support last year on the premise the board would be able to post unrealistically high earnings and sell the company for an unrealistically high price.

“We said that at the time. We felt the bondholders were between a rock and a hard place and we opposed [Blue Star’s] proposal because we felt that it was delaying the inevitable,” said Hawkins.

Hawkins said the root of the problem was Champ’s decision to pay NZ$385 million for Blue Star in 2006.

“This is a classic example of a leveraged buyout going horribly wrong – too much debt, too little commercial brain. This is a dying industry. Why would you take on such vast amounts of debt in an industry that’s only going to head in one direction?”

Stockbroker Michael Warrington from Wellington-based Chris Lee & Partners was also unsurprised by Blue Star’s admission that bondholders looked set to miss out.

“I didn’t expect money back then [before last year’s vote] and I don’t now… Every step during and since the restructuring has been disappointing,” he told ProPrint.

Yesterday’s announcement also revealed that independent director Roger France would be leaving on 1 August after five years’ service.

Warrington said he had been disappointed when former managing director Chris Mitchell resigned soon after last year’s restructuring, but was pleasantly surprised that France had stuck around for so long.

Click here to read about the ups and downs of Blue Star.

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