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Enumerate
07-03-2010, 08:58 AM
Latest announcements offer complete transparency on the state of the banking covenants.

Any interest in a further discussion?

Alan3285
08-03-2010, 08:06 AM
What are the latest announcements?

Do you have a link to the specific thing(s) you want to discuss?

Thanks,

Alan.

Enumerate
08-03-2010, 09:06 PM
What are the latest announcements?

Analyst presentation:

http://www.nzx.com/markets/NZDX/BLU020/announcements/3367818/Analyst-Presentation

Halfyear result:

http://www.nzx.com/markets/NZDX/BLU020/announcements/3367818/Analyst-Presentation

The material details the nature of the senior loan covenants and reiterates the covenants in the BLU020 trust deed.

It is clear that they need to pay down more senior debt and improve revenue before the BLU020's will resume interest payments.

However, they are generating cash from the business, even in these dark times. My view is that the deep discount to face, offered in market, has more to do with the lack of liquidity than a reasonable estimate of counterparty risk.

Alan3285
08-03-2010, 09:22 PM
Hi Enumerate,


Analyst presentation:

http://www.nzx.com/markets/NZDX/BLU020/announcements/3367818/Analyst-Presentation

Halfyear result:

http://www.nzx.com/markets/NZDX/BLU020/announcements/3367818/Analyst-Presentation

The material details the nature of the senior loan covenants and reiterates the covenants in the BLU020 trust deed.

It is clear that they need to pay down more senior debt and improve revenue before the BLU020's will resume interest payments.

However, they are generating cash from the business, even in these dark times. My view is that the deep discount to face, offered in market, has more to do with the lack of liquidity than a reasonable estimate of counterparty risk.

I had a look through the analyst's presentation.

I assume the interest on the bonds, which is not being paid, is not accumulating either?

Alan.

Enumerate
09-03-2010, 11:04 AM
I assume the interest on the bonds, which is not being paid, is not accumulating either?


Not only is the interest accumulating ... it is compounding!

GTM 3442
09-03-2010, 11:18 AM
Yowzah ! ! !

"Blue Star also confirms that when interest payments resume, interest will be
paid to the persons who are registered holders of the capital bonds on the
record date for the relevant interest payment date, being the Friday
proceeding the tenth business day prior to that interest payment date,
regardless of who might have been the holder of the bonds during any of the
interest suspension period prior to that record date. "

So not only are they cheap, but they've got backdated interest ?

Or am I missing something obvious ?

Alan3285
09-03-2010, 01:14 PM
Hi GTM,


Yowzah ! ! !

"Blue Star also confirms that when interest payments resume, interest will be
paid to the persons who are registered holders of the capital bonds on the
record date for the relevant interest payment date, being the Friday
proceeding the tenth business day prior to that interest payment date,
regardless of who might have been the holder of the bonds during any of the
interest suspension period prior to that record date. "

So not only are they cheap, but they've got backdated interest ?

Or am I missing something obvious ?

That's what I was wondering - it seems 'too good to be true', although of course the real risk is that the issuer either goes belly up, or the date when interest payments resume is so far in the future that you have a cash flow 'negative' investment for a long time.

However, I am now quite interested.....

Alan.

Enumerate
10-03-2010, 01:35 PM
Yes, the interest is accruing and compounding.

They halted payments due in Sept 2009, I believe. At this point, November onwards, the payments accrue at the higher interest rate of 13.1% (from memory).

Enumerate
11-03-2010, 07:25 AM
BLU020 are being priced, by the market, as if they had already failed and the likely recovery rate is at the lower quartile of expected recovery for this type of business.

This, in my view, is clearly wrong.

The business is cash flow positive and while they will declare a modest loss in NPAT, this is not unreasonable performance during a recession.

Like most hedge fund mediated management buyouts - the capital structure is fairly thin. For example, the shareholders funds are about equal to the "goodwill" assets on the books. As the BLU020 are subordinated to the senior debt - there is a degree of discomfort in this position. Hence, the "counterparty risk", in terms of getting the capital back, is not zero. However, in my view, this risk is less than market pricing would imply.

Clearly, the risk of not receiving interest payments has come to pass. This is driven by both senior debtor covenants and by the BLU020 trust covenants - all free cash has been diverted to paying down senior debt. There is compensation for this, in terms of the increase in yield.

Investing in BLU020 is indicated if you believe that economic activity will slowly recover over the next few years. Based on this the company guidance of resuming interest payments in early 2011 would be a reasonable assumption.

Unlike finance companies, the downside protection is the value of seemingly viable industrial business units. It would appear unlikely that the hedge fund investors in Bluestar Group would allow their equity to be wiped out and control transferred to senior and subordinated investors.

My personal view is that 75cents per $1 face would be a reasonable discount, given the risk. The units trade at half these levels - which begs the question ... why?

Always grateful for any new perspective or information on this ...

Enumerate
11-03-2010, 03:23 PM
Reasonable volumes of BLU020 traded today at about 60%

Well done guys!

Jaa
08-04-2010, 09:53 PM
I had a look at BlueStar and while generally I agree with your analysis I found one thing in their report I didn't like/understand.

There is a significant amount of inter-party lending going on with I believe the owners being paid back both similar principal amounts as the banks and at an interest rate the same as the bonds penalty rate (13.1%)!!

How did they manage that one? Instead of injecting real equity they inject in another company and get paid out on their loan before current debt holders and receive a very good rate of interest on it.

Also this bit in the accounts:


NOTE B This loan has been made by Blue Star Group (New Zealand) Limited (formerly Blue Star Print Group (New Zealand) Limited) to BSGIL to assist in funding senior debt obligations under
the SSCFA. As mentioned at note 4, each Group member is a guarantor under the SSCFA.
Interest on this loan is accruing at the interest rate applicable to the Subordinated Capital
Bonds under the Subordinated Capital Bonds Trust Deed, which is currently 13.1% per annum.
The loan is unsecured and is subordinated to all external indebtedness of BSGIL but will rank pari
passu with all other intra-group indebtedness of BSGIL. The repayment date for the loan is 26
August 2012, although that date may change if the maturity date for the Subordinated Capital Bonds, or the maturity date under the SSCFA, or both, is amended.

As I understand it the company has no right to amend the maturity date for the Subordinated Capital Bonds?

Enumerate
09-04-2010, 08:06 AM
For me, there are two key observations.

1) Bluestar Group is is thinly capitalised - as you may expect with a leveraged management buyout. The main category of assets supporting the equity capitalisation is "goodwill". This would normally cause alarm bells to ring but the mitigating factors are that CHAMP (the Australian private equity concern behind Bluestar) must be regarded as a secure foundation. After all, a private equity firm will seek to restructure long before contemplating bankruptcy.

The recent McMillan deal is a case in point - this unit was brought in as 100% owned, with a modest equity injection (and the increase in the secured interparty loans). This is actually good for the BLU020's as it increases the net revenue generated by the firm (in accounting terms) and moves the firm closer to satisfying the secured loan banking covenants (and hence resuming BLU020 payments).

2) The BLU020 Trust Deed is very good. There are covenants on the secured loans that contributed to the halt of BLU020 interest payments - but there were also terms of the Trust Deed that would have forced a higher interest payment on the BLU020's.

Hence, I think the way to look at Bluestar is to focus on the cashflows. The situation is reasonable - they managed to pay down about $20million in senior debt/leases in 2009. The prime metric of interest to BLU020 holders is total revenue to senior debt - it has to be 1:3, presently it is about 1:3.5. It really all boils down to the trading conditions - if the rebound from the GFC stimulates a return to more normal revenues then we may see a resumed interest flow - the company is suggesting this will be early 2011.

My feeling is that Bluestar will recover without the need for serious financial surgery. The market is pricing them at less than an expected recovery value as if they had already failed! Hence, while there are serious risks - there are compensating serious rewards.

Alan3285
16-04-2010, 04:23 PM
Hi Guys,

Quick thought:

If I were to buy some BLU020s, would I be charged the unit price per market, plus an amount for accrued interest even though the interest has been suspended?

For example, if I buy some SCF010s today, I would pay for the accrued interest since the last interest payment date. But does this still happen with the BLU020s?

Thanks,

Alan.

Enumerate
16-04-2010, 04:44 PM
I just go to the NZX and look up the code. They translate the percentage into the buy price. For example, this is BLU020, at close of market:

Buy Yield 74.00% Buy per $100 35.091
Sell Yield 61.00% Sell per $100 42.846

You could phone up a broker and place an order at 61% - the units would trade a about 43cents per $1 face and would grant you full entitlement to the past accrued payments.

Alan3285
16-04-2010, 04:58 PM
Hi Enumerate,

Just to clarify:


You could phone up a broker and place an order at 61% - the units would trade a about 43cents per $1 face and would grant you full entitlement to the past accrued payments.

If I put a buy order in at 61% (using your example figures) for 10,000 units, would the final amount I had to settle with the broker be:

10,000 x $0.42846 = $4,284.60 + brokerage

or would there be an additional amount on top to cover the accrued interest up to settlement?


Thanks,

Alan.

Enumerate
16-04-2010, 07:04 PM
Yes, I believe your calculation is correct.

Further, you have entitlement to all accrued interest (past and current period).

Please verify with your broker - I cannot easily check my broker statements for fixed interest transactions (they only provide paper statements and all the paperwork is a the accountants).

Alan3285
16-04-2010, 09:50 PM
Yes, I believe your calculation is correct.

Further, you have entitlement to all accrued interest (past and current period).



Of course - that is always the case with bonds (at least in my experience).



Please verify with your broker - I cannot easily check my broker statements for fixed interest transactions (they only provide paper statements and all the paperwork is a the accountants).

I was just hoping someone here might have had some direct experience of purchasing (or selling) BLU020 this year, just in case the interest suspension changed things.

Thanks,

Alan.

Enumerate
17-04-2010, 05:51 AM
I have bought some this year. In fact I my entire holding has been established after the date of the suspended interest payment - Sept '09.

Your best bet is to get a quote from your broker.

Alan3285
17-04-2010, 11:33 AM
I have bought some this year. In fact I my entire holding has been established after the date of the suspended interest payment - Sept '09.

Your best bet is to get a quote from your broker.


Yes, but you don't know whether you paid for the accrued interest or not!?

Makes quite a big difference to the investment.

Alan.

Enumerate
17-04-2010, 12:17 PM
Yes, but you don't know whether you paid for the accrued interest or not!?


*sigh* - I am perfectly well aware of the price paid ... I paid for the capitalised interest ... it was included in the price defined by the NZX calculation.

Alan3285
17-04-2010, 08:43 PM
*sigh* - I am perfectly well aware of the price paid ... I paid for the capitalised interest ... it was included in the price defined by the NZX calculation.

Okay - but is it capitalised interest up to Dec 2009, or does it included capitalised interest subequent to the date that BlueStar stopped paying out the interest, into 2010?

Thanks,

Alan.

Enumerate
18-04-2010, 09:02 AM
Dealing in fixed interest seems to be a very manual process with my broker.

I think you should get a quote from your broker to clarify the issue.

Alan3285
18-04-2010, 10:36 AM
Dealing in fixed interest seems to be a very manual process with my broker.

I think you should get a quote from your broker to clarify the issue.

Forgive me if I am being stupid here (it is not uncommon), but either you know what you paid for the bonds, and what interest (and from what date) was accrued and paid for at the time of the purchase, or you aren't sure?

Are you saying it is the latter? If so, that's fine - I didn't mean to sound like I was having a go or anything.

Thanks,

Alan.

Enumerate
18-04-2010, 01:24 PM
From thread response #16 ...



Please verify with your broker - I cannot easily check my broker statements for fixed interest transactions (they only provide paper statements and all the paperwork is a the accountants).


I can, however, reconstitute the transactions from the online bank statements and the registry documentation. Here is a list of prices (per bond transaction) in 2010:

Jan 35cents
Feb 41cents
March 41cents

Haven't bought any in April.

From memory, these trade figures were identical to the NZX formulae (trades at 75% down to 64%, from memory) ... if you look up the price on the NZX, this, in my view, is what you pay.

Contrarian
18-04-2010, 04:53 PM
Yes, but you don't know whether you paid for the accrued interest or not!?

Makes quite a big difference to the investment.

Alan.

Gidday
I think Alan is trying to find out if the NZX calculator knows that the previous interest has not been paid & has componded & capitalised the interest. I don't think the calculator or NZX have the capacity to recognise interest that is quietly compounding, it is all set up for the ideal world where people pay their bills.

See the paste of a contract note below, the interest seems for the current period, rather than say $1,500 (10% say for a year on 15k) OR has the unpaid interest been rolled into the capital value, I'm just guessing it hasn't.

But then again I could be wrong. As Enumerate points out you can get the dollars per hundred quote as well from NZX.

I remember a quote, "There are those who understand compound interest, and those who pay it" I suppose we are trying to identify & quantify it.

SECURITY:
WE BOUGHT ON YOUR ACCOUNT -
Blue Star Group Limited
Subordinated Bond - BLU020 15-Sep-2012 13.10% Quote Bases CI
Representing 15,000 @B60.0000 %UY
15,000 @ 60.0000 % Capital Value 6,214.34
Accrued Interest 53.40
Settlement Price 6,267.74
Brokerage 31.34
Trade Fee 5.50
Total Cost NZD 6,304.58
Settlement Date 25-Mar-2010
Order Completed

Contrarian
18-04-2010, 05:00 PM
Gidday
On Direct Broking & I think NZX there are fixed interest calculators you can play with, may prove or disprove theories. I just think 42 cents in the dollar, plus the chance of a windfall of the compounding interest seems like a good deal, Until it all goes T*ts up ;-)

Enumerate
18-04-2010, 09:09 PM
It is clear you paid the NZX amount per $100 on the date of interest capitalisation - 15 March 2010 and then paid the interest due up to settlement date (non-capitalised interest).

Contrarian
19-04-2010, 06:11 AM
From 15 September 2009, interest has accrued on the Capital Bonds at the
step-up interest rate of 13.1% per annum. Interest accrued at the step-up
interest rate is calculated on a compounding basis at quarterly intervals
until the suspended interest has been paid. The suspended interest is not
capitalised to become principal.

Gidday

I THINK this tells us the accrued interest is sitting in left field quietly compounding & the fixed interest calculator denies its existence, which as a buyer is a bonus. I was wrong in my earlier guesstimate re the unpaid interest on $15k, it's more like $982.50 (+compound) after 6 months.

Enumerate
19-04-2010, 07:36 AM
Remember, the September payment was the first payment missed.

On 15,000 ... I reckon you have accrued interest of $1,362.56 (September, December and March). This is the miracle of compound interest.



The suspended interest is not capitalised to become principal.


However, it is capitalised for the purposes of the NZX rate calculator. At the beginning, I was buying BLU020 at 75% and was paying less than current prices at 85%. So, I reckon that the interest is being capitalised, for the purposes of the calculator - but will become due as a cash payment rather than capitalised as part of the principal.

Alan3285
19-04-2010, 08:35 AM
Okay, this is what I found.

If I go to the NZX site, and check the current buy / sell offers, they are:

74% yield offers $31.156 per $100 nominal

61% yield costs $42.912 per $100 nominal

If I bang that into my trusty calculator, those figures assume that there is no accrued interest from prior periods (specifically the Sep 2009, Dec 2009, and Mar 2010 interest payments), but they do use the higher rate of 13.1% (the step-up rate).

So, Enumerate, if you paid exactly what is shown on the NZX site when you acquired your bonds each time, then I submit that the accrued interest from prior periods is entirely a 'bonus' on top of what you paid since you haven't explicitly paid for that accrued interest (ignoring the fact that the market bids / offers should take that into account implicitly).

Alan.

Alan3285
19-04-2010, 08:43 AM
It is clear you paid the NZX amount per $100 on the date of interest capitalisation - 15 March 2010 and then paid the interest due up to settlement date (non-capitalised interest).

How did you get such a low trade fee? Is this standard?


On the trade fee, did you factor in the brokerage figure?

It looks about right if you add the two together?

Alan.

Enumerate
19-04-2010, 11:17 AM
If I go to the NZX site, and check the current buy / sell offers, they are:

74% yield offers $31.156 per $100 nominal

61% yield costs $42.912 per $100 nominal


I think that is $35.156 (not $31.156)

Are you using the Reserve Bank bond pricing model in your calculations?

http://www.mngt.waikato.ac.nz/kurt/frontpage/ModelsAcademic/ExcelModels/Bond%20Price%20with%20Excel%20Functions.xls

Alan3285
19-04-2010, 11:22 AM
I think that is $35.156 (not $31.156)

Are you using the Reserve Bank bond pricing model in your calculations?

http://www.mngt.waikato.ac.nz/kurt/frontpage/ModelsAcademic/ExcelModels/Bond%20Price%20with%20Excel%20Functions.xls

You are correct - a typo by me - apologies.

I am using the bond pricing model stipulated by the govt (treasury I think), which is what the NZX / Direct Broking etc all use (presumably to bring consistency into quotes).

I wasn't aware of the Waikato model you linked to, but I assume all they have done is taken the govt formula and restated it.

I would just note that I don't entirely agree with the 'standard' pricing model, since it does not properly take into account the time-value of money, but I fully support everyone using a standard model when discussing prices!

Alan.

sleepdog
28-05-2010, 02:12 PM
does anyone know whats going on with BLU020 the value seems to be droping

Enumerate
28-05-2010, 02:23 PM
What do you mean?

Are you referring to the calculation of the trade price from the percentage bid/ask quotes?

Alan3285
28-05-2010, 03:52 PM
does anyone know whats going on with BLU020 the value seems to be droping

As of now, the best price you can purchase them at is a yield of 61%.

This is a higher price than the last few weeks, but still pretty good value perhaps.

Alan.

sleepdog
28-05-2010, 06:41 PM
yes it seems to have taken a sudden drop

Alan3285
28-05-2010, 07:29 PM
yes it seems to have taken a sudden drop

I'm not sure what you are looking at.

As I said above, the best offer today was 61%.

Last week, from memory, you could pick it up at 75%, so the best offered price on the board has gone up in the last week.

The last trade was actually at 60%, whereas last week, most trades were around the 75% - 80% (again from fallible memory), so everything is pointing to the price rising recently, not falling.

Depends on what period you are looking at of course. It is cheaper today than it was a year ago I think.


What are you looking at that is making you think the price has fallen?

Alan.

Enumerate
29-05-2010, 12:10 PM
Remember - the quotes are given as a % return - a "drop" is in fact the price going up.

Alan3285
29-05-2010, 02:42 PM
Remember - the quotes are given as a % return - a "drop" is in fact the price going up.

Yes, of course, but Sleepdog is saying that the value has dropped:


does anyone know whats going on with BLU020 the value seems to be droping


It doesn't look that way to me. It isn't even 'droping' ;)

Might just be a misunderstanding you mean?

Post back Sleepdog, and reference the stats you are looking at, and we can work out what is happening. If it is dropping and I haven't noticed, then I would like to know!

Alan.

sleepdog
01-06-2010, 04:17 PM
sorry iam new to this stuff what does the volume refer to, i see that they are not paying interest on bonds now trading at 89.00 good thing or bad ?????

Alan3285
01-06-2010, 08:29 PM
sorry iam new to this stuff what does the volume refer to

It refers to the number of securities that were traded.

Simple example:

If the unit price is $0.80 / bond and the volume is 10,000 units, then the value of trades will be $8,000.



i see that they are not paying interest on bonds now trading at 89.00 good thing or bad ?????

Well, depends on whether they start paying the interest again and if so, when!

If you are investing in something yielding 89%, you can bet that it is highly speculative and there is a good chance you will lose all of your investment, but if it comes off, then you will get 89% yield which is quite nice.

There is no 'good' or 'bad' as such - it is what it is, and you have to decide for yourself if it fits with what you want to do with your investments / portfolio.

If you do your analysis and think that 89% is more than enough compensation for the risk of losing whatever you invest, then you might want to get in.

FWIW I hold some BLU020 right now as I think it has potential, but if the economy takes a dive (double-dip) and / or BlueStar gooes completely belly up for other reasons, then I'll take a loss on it. Its my choice - no one else to blame or thank but myself!

Alan.

Dubdee
02-06-2010, 01:50 PM
I think there is even more value in these bonds.

The valuations are being done based on the coupon rate however the bonds are accruing interest at 13% since coupons were suspended so they are pregnant with this extra Moulah as well. So the quoted yield materially understates actual yield being earned.

Disc material holder

sleepdog
02-06-2010, 05:33 PM
with so many print company's going belly up at the moment and PMP taking on Blue star and Geon in the sheet feed market in NZ this must be a worry when it comes to paying the interest on bonds at 13% plus i think compounding interest ??

Dubdee
08-06-2010, 12:32 PM
with so many print company's going belly up at the moment and PMP taking on Blue star and Geon in the sheet feed market in NZ this must be a worry when it comes to paying the interest on bonds at 13% plus i think compounding interest ??

Though the bonds are accruing interest at 13.1% they are not paying it in cash and will not do so until the banks allow them. So the problem is being carried forward until they are in a financial postion to pay. These bonds are subordinated and are acting as (the banks) intended= quasi equity. I think the key question is how much skin in the game the private equity players have. If its materal then I think they will prop it up rather than walk away. They are not short of capital but will not contnue to throw cash down a maoney pit indefinitaly. If they walk away the banks feed first then the bonds after the other creditors.

sleepdog
09-06-2010, 08:45 PM
interesting news Former Blue Star chief executive Geoff Selig has returned to print by acquiring Sydney-based Quality Print Group, to be run by ex-Blue Star exec Mike Shannon.

Dubdee
07-07-2010, 10:10 AM
BLU020 trading now at 100.00%+pa this equates to about 25cents per dollar. looking at the top holders, big holders seem to be slowly accumulating and the selling must be comming from small. Albeit the register is a bit dated.

It seems to me that the market is pricing in disaster but there is now 75 cernts per dollar capital upside plus accrued interest at 13.1%

Any views?

Alan3285
07-07-2010, 11:22 AM
BLU020 trading now at 100.00%+pa this equates to about 25cents per dollar. looking at the top holders, big holders seem to be slowly accumulating and the selling must be comming from small. Albeit the register is a bit dated.

It seems to me that the market is pricing in disaster but there is now 75 cernts per dollar capital upside plus accrued interest at 13.1%

Any views?

Obviously it is possible I haven't got a clue, but it looks like a good deal to me (as long as you don't have too high a proportion of your portfolio in them).

I have some ;-)

Alan.

Dubdee
07-07-2010, 12:27 PM
Looking at the last filed accounts the company seems to be making operating earnings but is overloaded by debt.

The bank debt is located upstream from BSPG but is required to be serviced by BSPG by way of upstream gtees and a bank cash sweep. this means that the BPSPG accounts do not fairly reflect the actual indebtedness but the good news is that free cashflow appears to be applied to prior ranking bank debt which relieves the position of the capital notes.

Disc I have quite a few of these but buying sub debt at times of distress I have found so far profitable (Exception BNBG)

Alan3285
07-07-2010, 01:14 PM
Looking at the last filed accounts the company seems to be making operating earnings but is overloaded by debt.

The bank debt is located upstream from BSPG but is required to be serviced by BSPG by way of upstream gtees and a bank cash sweep. this means that the BPSPG accounts do not fairly reflect the actual indebtedness but the good news is that free cashflow appears to be applied to prior ranking bank debt which relieves the position of the capital notes.

Disc I have quite a few of these but buying sub debt at times of distress I have found so far profitable (Exception BNBG)

Yes - I regard my holding in BLU020 to be something of a 'punt'. If I lose the lot, it wouldn't be disasterous. On the other hand, I may do very well out of them.

More likely, the return will be 'okay' in that the gains will be good, but the timeframe will make the opportunity cost relatively high and hence the real return will be okay.

If I didn't already have them, I would buy them at the price I could today, so I figure that makes me a happy investor for now.

Alan.

sleepdog
12-07-2010, 04:30 PM
Just how much debt does BSPG have does anyone know

Enumerate
12-07-2010, 04:45 PM
As at 31/12/2009

Senior Bank Debt $150.5million
Finance Leases $37.3million
Sub Cap Notes (inc interest accrued) $111.5million

sleepdog
12-07-2010, 06:01 PM
this sounds like one hell of a debt compared to other companies that have gone bust with a lot less do you think they can handle such a massive debt ????????

Enumerate
12-07-2010, 06:26 PM
this sounds like one hell of a debt compared to other companies that have gone bust with a lot less do you think they can handle such a massive debt ????????

Do you know what the revenue is?

Shareholders funds?

Assets?

Pretty much a balance sheet and a cashflow statement is what is needed to make any kind of statement.

Alan3285
12-07-2010, 06:30 PM
this sounds like one hell of a debt compared to other companies that have gone bust with a lot less do you think they can handle such a massive debt ????????

It all depends (of course).

$1 might be enough debt to make a company fail - if it cannot pay when due.

On the other hand, $1b might be more than manageable. It all depends on cash flow and the due dates / profiles of the amounts owed.

In what way are you comparing, and with which other companies?

Post your analysis, and we can discuss, pull apart, improve, and salute as appropriate!

See the F&P discussion (http://www.sharetrader.co.nz/showthread.php?7777-Fisher-and-Paykel-Finance-Ltd-Debentures&p=306176&viewfull=1#post306176) on the NZDX board or the recent analysis by Enumerate on the SCF discussion examples of some great pieces of analysis ;-)


Alan.

Enumerate
12-07-2010, 09:30 PM
The bank debt is located upstream from BSPG but is required to be serviced by BSPG by way of upstream gtees and a bank cash sweep. this means that the BPSPG accounts do not fairly reflect the actual indebtedness but the good news is that free cashflow appears to be applied to prior ranking bank debt which relieves the position of the capital notes.


Did you see the Hold Co debt reporting in the Analyst presentation?


Disc I have quite a few of these but buying sub debt at times of distress I have found so far profitable (Exception BNBG)

Have you kept up with the news on the BNBG?

Dubdee
13-07-2010, 10:00 AM
Enumerate if you mean the Feb 2010 preso I have seen it.

From page 13 I calculate Ebitda/interest is 1.38 times. Not IG but satisfactory. Senior cash interest coverage is 2.19 times.

Senior leverage needs to be below 3 X for interest to be paid on CNs. They declared it was at 3.53 times as at Feb. I cant calculate that with senior debt at 150M and EBItDAR at 24.4 for 6 months as at 31/12/09

Have not seen much on BNBG recently. A clear case of my greed overcomming caution

Enumerate
13-07-2010, 10:33 AM
From page 13 I calculate Ebitda/interest is 1.38 times. Not IG but satisfactory. Senior cash interest coverage is 2.19 times.

Senior leverage needs to be below 3 X for interest to be paid on CNs. They declared it was at 3.53 times as at Feb. I cant calculate that with senior debt at 150M and EBItDAR at 24.4 for 6 months as at 31/12/09


Interesting ... I'll check this out.



Have not seen much on BNBG recently. A clear case of my greed overcomming caution


I think it is reasonable to expect some recovery on your BNBG. The public examinations are due to begin in Sydney. Expect some comment from the Liquidator, after this, once the Australian litigation begins. The US litigation has already commenced.

sleepdog
26-07-2010, 10:22 PM
Blue Star Print Group Ltd. reported unaudited consolidated earnings results for the six months ended December 31, 2009. For the period, the company’s revenue was $295.6 million compared with $304.6 million a year ago. Loss before income tax was $1.9 million compared with profit before income tax of $4.7 million a year ago. Loss was $1.5 million compared with profit of $3.2 million a year ago. Net cash generated from operating activities was $14.5 million compared with $23.9 million a year ago. The company reported purchases of property, plant and equipment of $1.6 million compared with $8.9 million a year ago. Capital expenditure was $1.7 million compared with $07 million for the same period a year ago.

Dubdee
27-07-2010, 08:58 AM
Has anyone seen any recent news from this issuer?

Yields have move from 80% to 120% on some volume without disclosure or comment from company and as ususal NZX compliance asleep. I would like to think the market is informed

Enumerate
27-07-2010, 04:57 PM
Has anyone seen any recent news from this issuer?

Price collapse is on reasonably thin volume. There is no liquidity in this stock.

If you calculate your interest tax on an accruals basis - this would be a very miserable stock to hold.

We should have some numbers in August.

sleepdog
28-07-2010, 09:49 PM
Blue Star is owned by private equity firm, Champ, which bought it three years ago for NZ$385 million. Champ has recently allowed another one of its properties, discount chain, ’Go-Lo’ to fail.

Alan3285
28-07-2010, 10:46 PM
Not sure about volumes, but I note that right now (close of business today effectively), the bid / offers were at:

95% / 62%

So, if you want to look at it this (one sided) way, the best price you can acquire these bonds for (or alternatively, the lowest price that any current actual holder of the bonds will sell for) is 62%.

Clearly one issue is liquidity with a bid / offer spread that wide.

I think 62% is quite a good yield, as long as you don't need the cash flow from interest. I would be disappointed if they don't pay the accrued interest and resume interest payments in 2012.

Alan.

Dubdee
02-08-2010, 09:14 AM
Blue Star snatches ACP contract, $40m blow for PMP
Duncan Bridgeman | Wednesday July 28, 2010 - 09:05am

Transtasman print group Blue Star Group has snatched the ACP Media New Zealand printing contract in a move described by insiders as “devastating” for the local arm of PMP.

Blue Star, privately owned by funds advised by CHAMP Private Equity, Tom Sturgess and Blue Star senior management, was awarded the contract two weeks ago, chief executive Chris Mitchell confirmed to NBR yesterday.

PMP Print (NZ) had held the contract but it was put up for tender when ACP’s parent company PBL Media shelved plans in April to build its own printing plant.

Mr Mitchell said the contract covered all ACP’s consumer magazines, trade press and the coveted New Zealand Property Press. Consumer magazine titles include Metro, Next, North & South, Woman’s Day, and The Australian Women’s Weekly.

“We are thrilled,” Mr Mitchell said.

He did not disclose how much the contract was worth but industry sources NBR spoke to estimated it at $40 million a year.

Blue Star already has a strategic partnership and printing contract with ACP in Australia.

This win should be welcome news to Blue Star's New Zealand bondholders, who have received no interest since September last year when Blue Star suspended payments after its parent company breached its banking covenants.

Blue Star has recently had its financial covenants re set but has told investors not to expect interest payments on capital bonds this calendar year.

In the meantime interest due is compounding at 13.1% per annum from the current coupon rate of 9.1%.

Blue Star Print Group reported an unaudited consolidated loss before income tax of $1.9 million for the six months to December 2009, compared with profit before income tax of $4.7 million over the same period a year ago.

Revenue was $295.6 million compared with $304.6 million a year ago.
Net cash generated from operating activities was $14.5 million compared with $23.9 million a year ago.

Mr Mitchell told NBR revenue from the ACP contract would help facilitate a return for investors.

“The business is moving forward now.”

Sources said the loss of ACP was a big blow for PMP.

“The impact will be devastating for PMP, which had the lion’s share for a long time … the market is tough and there will be some further changes in the next three months because of this,” one industry insider said.

PMP general manager Peter Browne was unavailable for comment.

Alan3285
02-08-2010, 10:00 AM
Blue Star snatches ACP contract, $40m blow for PMP
Transtasman print group Blue Star Group has snatched the ACP Media New Zealand printing contract in a move described by insiders as “devastating” for the local arm of PMP.

Yeah - I saw that too.

Excellent news for us as BLU020 holders.

Alan.

sleepdog
06-08-2010, 08:39 PM
there probably doing $40m of work for $30m

Alan3285
06-08-2010, 10:45 PM
there probably doing $40m of work for $30m

I doubt it - why would they?

More likely they are doing work that PMP was making $15m profit on, for $5m profit.

Alan.

Enumerate
07-08-2010, 07:56 AM
Our Bond and senior debt covenants are only revenue based ... even if they break even, this is good news for bondholders.

Alan3285
07-08-2010, 09:15 AM
Our Bond and senior debt covenants are only revenue based ... even if they break even, this is good news for bondholders.

That's absolutely true, but I meant that the management will be making decisions that they believe are positive to the bottom line either short or longer term.

I am relaxed as a bondholder at this point.

Alan.

Newman
12-08-2010, 12:31 PM
Our Bond and senior debt covenants are only revenue based ... even if they break even, this is good news for bondholders.

For the first 6 months EBITDAR was $20 m from a revenue of about $300 m. If this ratio is kept $40 m new revenue would only add $2.7 m to the whole year EBITDAR. Further, we dont know if Blue Star lost any contracts while it gains new ones. Unless its shareholders inject new equity it would remain as bad as it is now.

Alan3285
12-08-2010, 04:15 PM
For the first 6 months EBITDAR was $20 m from a revenue of about $300 m. If this ratio is kept $40 m new revenue would only add $2.7 m to the whole year EBITDAR. Further, we dont know if Blue Star lost any contracts while it gains new ones. Unless its shareholders inject new equity it would remain as bad as it is now.

Hi Newman,

It won't be.

EDITDA is after overheads.

The overheads will be (relatively) fixed.

Clearly we don't know what trading margin they are making on the $40m, but I would very much doubt it is less than 10% which would add $4m to the bottom line and more likely 20% at least.

Few print companies operate on trading margins (after materials costs) of less than 50% and gross margins (after direct factory costs and wages) of less than 35%. They might have taken a view on $40m of turnover, but not that much of a view.

Might be wrong of course, but I think it will add more than your $2.7m to the bottom line.

The bigger question is what the overall EBITDA will be - they might have added $8m from the new deal, and lost $10m from elsewhere!

Alan.

sleepdog
13-08-2010, 06:10 PM
Blue Star Group Limited is in full compliance with its continuous disclosure obligations and has a policy to not comment on specific customer contracts unless required to do so by listing rule 10.1.1.
no news is good news i hear they lost some big ones , the web side seems to be doing well as for the rest ???????

Newman
19-08-2010, 01:01 PM
Our Bond and senior debt covenants are only revenue based ... even if they break even, this is good news for bondholders.

PMP today reported a 10% decrease in revenue to $1.21 billion. It made a net profit of $20 m, largely due to a saving in borrowing cost of $13.2 m. PMP has a low gearing ratio (debt/equity) of 45%, compared with Blue Star's estimated 300% (including parent company's bank debt).

If PMP's revenuw is a good indication of the printing industry's current status then the full year result of Blue Star Group would be in a terrible situation. Where would it get money to pay interest (already accumulated about $15 m) to bond (BLU020) holders even if banks allow it to resume interest payment? Further, why do not its shareholders buy back bonds at 115% annual return? In contrast to this huge buyback return, printing business only generates a <5% (EBIT/sales) return. A reasonable explanation would be: the shareholders of Blue Star do not believe the company can survive. Therefore last year they gave another troubled company (Macmillian printing) to Blue Star and in return they extract cash out of this dying Blue Star. The accumulating interest is just a number as they do not expect to pay the interest to bond holders.

sleepdog
19-08-2010, 06:56 PM
stayed tuned this could get a whole lot better as they bring out the carving knife again

Alan3285
19-08-2010, 08:22 PM
PMP today reported a 10% decrease in revenue to $1.21 billion. It made a net profit of $20 m, largely due to a saving in borrowing cost of $13.2 m. PMP has a low gearing ratio (debt/equity) of 45%, compared with Blue Star's estimated 300% (including parent company's bank debt).

If PMP's revenuw is a good indication of the printing industry's current status then the full year result of Blue Star Group would be in a terrible situation. Where would it get money to pay interest (already accumulated about $15 m) to bond (BLU020) holders even if banks allow it to resume interest payment? Further, why do not its shareholders buy back bonds at 115% annual return? In contrast to this huge buyback return, printing business only generates a <5% (EBIT/sales) return. A reasonable explanation would be: the shareholders of Blue Star do not believe the company can survive. Therefore last year they gave another troubled company (Macmillian printing) to Blue Star and in return they extract cash out of this dying Blue Star. The accumulating interest is just a number as they do not expect to pay the interest to bond holders.

10% revenue down would be a pretty good performance I think.

The print industry is apparently 35% down from 2007 but presumably the 10% is from 2009?

Alan.

sleepdog
24-08-2010, 05:02 PM
Any news about BLU020 thought they would have given some figure for the year ??

Dubdee
25-08-2010, 09:16 AM
First NZ are hosting a dial in expose for Blue Star this coming Friday. Suggest anyone intersted call Amy at FNZ to get dial in details.

Interstingly it seems to have been FNZ doing all the bond selling.

Newman
25-08-2010, 10:24 AM
First NZ are hosting a dial in expose for Blue Star this coming Friday. Suggest anyone intersted call Amy at FNZ to get dial in details.

Interstingly it seems to have been FNZ doing all the bond selling.

Blue Star's preliminary accounts should be out anytime this week. As the 2nd half year (to June 30) is usually worse than the first harf year (to December 30) the whole year results would not be bright. The problem with the company is that its shareholders are extracting cash out of it when it badly needs equity injection.

Dubdee
25-08-2010, 11:11 AM
I am not sure that they can do that. Under covenants in the bonds if interest is suspended no distributions can be made to shareholders or preference share hlder.


I think free cash flow is going to pay down bank debt via a cash sweep. In my mind as long as operating earnings are positive thats not a bad application as bank is prior ranking

Newman
26-08-2010, 07:20 PM
I am not sure that they can do that. Under covenants in the bonds if interest is suspended no distributions can be made to shareholders or preference share hlder.


I think free cash flow is going to pay down bank debt via a cash sweep. In my mind as long as operating earnings are positive thats not a bad application as bank is prior ranking


A fundamental question is: how can a business paying an interest rate of 13% make a profit?

Alan3285
26-08-2010, 08:01 PM
A fundamental question is: how can a business paying an interest rate of 13% make a profit?

Are you serious?

How many businesses do you know that average a real proprietor's return of less than 13% over time?

Most SMEs have overdrafts with those kinds of interest rates.

Alan.

Alan3285
26-08-2010, 08:03 PM
Announcement Today (26 Aug 2010) (http://www.nzx.com/markets/NZDX/BLU020/announcements/4065598/Strong-second-half-boosts-performance-of-BLU)

Newman
27-08-2010, 09:04 AM
Announcement Today (26 Aug 2010) (http://www.nzx.com/markets/NZDX/BLU020/announcements/4065598/Strong-second-half-boosts-performance-of-BLU)

Blue Star was very selective in its accounts reporting. It puts out "good" numbers and hides bad ones. For any business, the real important number is after tax profit. It was negative $2.6 million for Blue Star!

Only stupid businessmen would pay an interest at 13% for a long time. How many companies in NZ can make a return on equity over 13%? Blue star stated an equity of more than $100 million. Putting the money in a bank would earn you $7 million p.a., not a loss of $2.7 million.

If the company was good at making money its shareholders would buy back BLU020 bonds at 20 cents for a dollar. Giving that the accumulated interest is about 15 cent already, they only pay 5 cents to cancel bonds of $1 each. Why don't they do that?

No financial analyst is interested in giving an analysis for the "strong" results of Blue Star. This is a good indication of how experts view this dying company.

Alan3285
27-08-2010, 09:53 AM
Blue Star Group Ltd have provided NZX with their FY2010 full year Analyst Presentation:

FY2010 full year Analyst Presentation (http://file.nzx.com/000/448/4067448.pdf)



Alan.

Alan3285
27-08-2010, 10:11 AM
Blue Star Group Ltd have provided NZX with their FY2010 full year Analyst Presentation:

FY2010 full year Analyst Presentation (http://file.nzx.com/000/448/4067448.pdf)

Alan.


Very quickly gone through it and the key numbers here look like the turnaround in the interest cover (deficit) for the bonds.

FY09 Profit / (Loss) Before Interest to Subordinated Bonds = ($26.5m)

FY10 Profit / (Loss) Before Interest to Subordinated Bonds = ($2.0m)


Net Debt:

Interesting page on this. Anyone know more about the shareholder loans that were put in ($19.3m in FY09) and then withdrawn ($10m in FY10)? Is that the correct interpretation?

Senior bank debt is down by $25.9m but they are only showing $24.6m of repayments and that includes the $10m above which should mean senior debt down by $14.6m? These are just summaries - we'll need the full accounts to know the detail?


Still, if they continue to pay down the senior debt over the next six months, we might see a resumption in interest payments on the bonds by mid 2011? See page 13 for a discussion on this.


Alan.

sleepdog
29-08-2010, 12:29 PM
the answer is there not paying interest it just keeps building with the hope of winning the lottery to pay ,could this just be a right of ???????

Alan3285
29-08-2010, 01:15 PM
the answer is there not paying interest it just keeps building with the hope of winning the lottery to pay ,could this just be a right of ???????

Sleepdog,

Are you informing us that the interest payments on the bonds are suspended?

Alan.

sleepdog
30-08-2010, 08:15 PM
Blue Star's after-tax profits fell NZ$57.15m from a NZ$54.5m profit in 2008/09 to a loss of NZ$2.65m for this financial year.

Newman
30-08-2010, 08:27 PM
Blue Star's after-tax profits fell NZ$57.15m from a NZ$54.5m profit in 2008/09 to a loss of NZ$2.65m for this financial year.

Excluding the so called forgiving loan (about $70 million) the real EBIT last year was about $20 millions loss.

Alan3285
30-08-2010, 09:19 PM
Blue Star's after-tax profits fell NZ$57.15m from a NZ$54.5m profit in 2008/09 to a loss of NZ$2.65m for this financial year.

Hi Sleepdog,

Where are you quoting the numbers from?

Thanks,

Alan.

sleepdog
30-08-2010, 09:53 PM
there is an article written on pro print website

Alan3285
30-08-2010, 10:23 PM
there is an article written on pro print website

Okay - found it (it is now on the home page).

Their numbers seem to be different to what BSPG presented per the link above?

If you can reconcile the two I would be interested, but as relates to the BLU020 securities that we are discussing, it is the Profit Before Interest to Subordinated Bonds that really matters?

Alan.

Newman
01-09-2010, 03:49 PM
BLU020 might be a good buy now

At the recent price of around 25 cents per bond it would be a good time to buy. Let's assume the followings:

1. Blue Star group does not survive by early 2012 when it needs to renew its senior debt;
2. The business is on market for sale; and
3. Its intangible assets (ca. $120 m) is completely written off.

Then its assets still slightly exceeds it debts (ca $300 million now, including senior debt of $150 million). As long as it can be sold off at $200 million (this is much less than its owner bought it in 2007?) each bond holder would get 200-150/105 = $ 0.47 for bond.

Anyone agrees or disagrees my analysis?

Alan3285
01-09-2010, 04:43 PM
BLU020 might be a good buy now

At the recent price of around 25 cents per bond it would be a good time to buy. Let's assume the followings:

1. Blue Star group does not survive by early 2012 when it needs to renew its senior debt;
2. The business is on market for sale; and
3. Its intangible assets (ca. $120 m) is completely written off.

Then its assets still slightly exceeds it debts (ca $300 million now, including senior debt of $150 million). As long as it can be sold off at $200 million (this is much less than its owner bought it in 2007?) each bond holder would get 200-150/105 = $ 0.47 for bond.

Anyone agrees or disagrees my analysis?

Yep - I feel quite bullish about BLU020 at this point.

Are you thinking this might be a good home for some of the cash you are pulling out of SCF?

Alan.

sleepdog
02-09-2010, 05:07 PM
BLU020 might be a good buy now

At the recent price of around 25 cents per bond it would be a good time to buy. Let's assume the followings:

1. Blue Star group does not survive by early 2012 when it needs to renew its senior debt;
2. The business is on market for sale; and
3. Its intangible assets (ca. $120 m) is completely written off.

Then its assets still slightly exceeds it debts (ca $300 million now, including senior debt of $150 million). As long as it can be sold off at $200 million (this is much less than its owner bought it in 2007?) each bond holder would get 200-150/105 = $ 0.47 for bond.

Anyone agrees or disagrees my analysis?

what did they buy in 2007 and how much did they pay do you know

Newman
02-09-2010, 07:34 PM
what did they buy in 2007 and how much did they pay do you know

Blue Star Print Group (BSPG) is a large and diverse print and related services provider operating throughout Australia and New Zealand. The company is headquartered in Auckland, and is New Zealand’s largest and one of Australia’s largest commercial printers, with a combined revenue of over NZ$400m. It operates 15 separately branded business units within 3 major divisions and a Labels business. BSPG offers a broad base of print and marketing communications solutions, including a sophisticated print management offering, whereby it manages the end to end printing process of large corporate customers, including pre-press artwork, printing, inventory management and storage & distribution.

In December 2006, CHAMP Private Equity, in partnership with management, purchased Blue Star Print Group for approximately A$336 million.

Newman
06-09-2010, 12:59 PM
Last week First NZ produced a report on BLU020. A conclusion from the report is:

"The current risk return profile of the BLU020 bonds is therefore more akin to that of a high risk equity investment than that of a bond. It seems unlikely that bond holders will receive back the full principal and accrued but unpaid interest owing on the bonds."

sleepdog
08-09-2010, 04:32 PM
Last week First NZ produced a report on BLU020. A conclusion from the report is:

"The current risk return profile of the BLU020 bonds is therefore more akin to that of a high risk equity investment than that of a bond. It seems unlikely that bond holders will receive back the full principal and accrued but unpaid interest owing on the bonds."

out of 100% what chance would you rate BLU020 to survive past 2012

Beagle
08-09-2010, 06:55 PM
out of 100% what chance would you rate BLU020 to survive past 2012

From a technical analysis point of view the chart screams sell. The value of these bonds is making all time new lows and the future looks extremly bleak...but of course that won't stop the punters having a go and some would argue the likes of Enumerate are due for some luck after his SCF loss.

Personally I'd rather visit the Casino than punt on an extremly highly leveraged company that was poorly set up in pre-GFC days, gone are the days of absurdly high leverage, it just that it takes some companies a while before they either realise that. The directors should be aggresivly looking to divest themselves of non-core or even core assets to reduce their leverage quickly but the last time I looked they were still talking about quite different stratagies WTF ??

Newman
08-09-2010, 08:01 PM
out of 100% what chance would you rate BLU020 to survive past 2012

Blue Star has $300 m debt. The interest cost at 13% would require it to make $39 m per year. Its EBITADR was just over $40 m. It would need good luck as well good strategy to survive beyond March 2012 when its bank debt is due.

Beagle
09-09-2010, 03:12 PM
Blue Star has $300 m debt. The interest cost at 13% would require it to make $39 m per year. Its EBITADR was just over $40 m. It would need good luck as well good strategy to survive beyond March 2012 when its bank debt is due.

CNBC poll of 3000 voters run recently on www.cnbc.com rated the chance of a double dip recession at 58% for and 42% thought we'd be allright.
I'd say they need a fair wind in their sails from a general business perspective as well as favourable conditions in the printing industry which from what I am hearing is still doing it very very tough.

But the Directors of Blue Star still try and put a really positive spin on everything blah, blah, blah....does any of this sort of P.R. Bulls#it ring a bell regarding a certain Timaru based company ?...and we all know what happenned there.

sleepdog
09-09-2010, 06:08 PM
At present the company can buyback some of its subordinated bonds (BLU020) for about 20 cents in the dollar. Let's also remember that $1 of debt is actually now a $1.17 obligation, and rising.

Beagle
09-09-2010, 08:01 PM
At present the company can buyback some of its subordinated bonds (BLU020) for about 20 cents in the dollar. Let's also remember that $1 of debt is actually now a $1.17 obligation, and rising.

Are you sure about that ? Perhaps they are precluded from doing so by virtue of some arrangement regarding their senior banking facility. Bottom line is they arn't doing so and the chart says SELL.

I got out when they were trading in the 60% yield range quite some months ago and I'm very happy I did !!

Alan3285
09-09-2010, 08:48 PM
Are you sure about that ? Perhaps they are precluded from doing so by virtue of some arrangement regarding their senior banking facility.

I believe that is correct - they have to meet certain banking covenants before they can pay off the bonds, and remember that the bonds are not actually paying (in cash) the interest.

That means that the bank lender is better off with them accruing the interest at any rate than paying it out, and they are secured ahead of the bonds, so it doesn't matter what the quantum of the capital and accrued interest is to them.

On the positive side, if EBITDAR continues on current trend, then they should be able to meet those covenants next year, and start the interest payments again. The bank will be 'happy' (meeting the covenenants) and the shareholders will be happy (no longer paying penalty interest).

There has been much consolidation in the print industry, and that is continuing apace right now, so margins could start recovering through FY11. This is a speculative investment for those with fortitude, and a risk appetite in a portion of their portfolio. Not for the oldies out there!

Alan.

Newman
10-09-2010, 08:59 AM
I believe that is correct - they have to meet certain banking covenants before they can pay off the bonds, and remember that the bonds are not actually paying (in cash) the interest.

That means that the bank lender is better off with them accruing the interest at any rate than paying it out, and they are secured ahead of the bonds, so it doesn't matter what the quantum of the capital and accrued interest is to them.

On the positive side, if EBITDAR continues on current trend, then they should be able to meet those covenants next year, and start the interest payments again. The bank will be 'happy' (meeting the covenenants) and the shareholders will be happy (no longer paying penalty interest).


There has been much consolidation in the print industry, and that is continuing apace right now, so margins could start recovering through FY11. This is a speculative investment for those with fortitude, and a risk appetite in a portion of their portfolio. Not for the oldies out there!

Alan.


The promised $9m saving in cost by merging with McMillan print was not realised, and Blue Star is still making after tax loss of $2.6 m. Even if banks allow it to resume bond interest payment where is the money come from? Blue Star basically has no cash.

Talking about the 3x ratio of EBITDAR/bank debt nobody (except for banks and Blue Star managers) knows either the EBITDAR or senior debt. Obviously analyst John Norlingof First NZ Captital does not know. In a research report last week he concluded that "It seems unlikely that bond holders will receive back the full principal and accrued but unpaid interest owing on the bonds". By the way, the ratio increased from 3.51 six months ago to 3.61 now.
How can you say the financial situation of Blue Star is improving?

At current price (15 cents) the bonds, however, could be worth to buy. If lost it is just 15 cents. If you have the good luck you migh get back 50 cents.

Alan3285
10-09-2010, 09:14 AM
At current price (15 cents) the bonds, however, could be worth to buy. If lost it is just 15 cents. If you have the good luck you migh get back 50 cents.

Absolutely - definitely a speculative investment.

I'm happy with the 'odds' and even if it goes under, the BLU020s could still get back at least 15c in the dollar anyway.

Alan.

Newman
10-09-2010, 11:13 AM
PMP is the only listed (ASX) printing company. It share price has jumped from a 4 week low of 57 cents to 72 cents today. Does anyone have any idea on price increasing? Is it an indication of printing business rebound or something else? Just 2 months ago PMP and another company lost a $40 m contract to Blue Star group.

Beagle
10-09-2010, 03:33 PM
Absolutely - definitely a speculative investment.

I'm happy with the 'odds' and even if it goes under, the BLU020s could still get back at least 15c in the dollar anyway.

Alan.

Enumerate took exactly that approach with SCF pref shares and look how what a roaring success that was !!

sleepdog
10-09-2010, 03:40 PM
PMP is the only listed (ASX) printing company. It share price has jumped from a 4 week low of 57 cents to 72 cents today. Does anyone have any idea on price increasing? Is it an indication of printing business rebound or something else? Just 2 months ago PMP and another company lost a $40 m contract to Blue Star group. pmp have made conscious decision to walk away from work that doesn't deliver the right profitability i wounder who got that work ??? they also won Target's distribution contract from rival Salmat.Woolworths recently renewing with PMP for 100% of its heatset work across Australia and New Zealand.

Alan3285
10-09-2010, 03:52 PM
Enumerate took exactly that approach with SCF pref shares and look how what a roaring success that was !!

I didn't know that the figures were out - what are the SCFHA holders getting Roger?

sleepdog
10-09-2010, 04:03 PM
PMP is looking to challenge Geon and Blue Star in the New Zealand sheetfed market following the $2.4m (NZ$3m) investment in the country's first 10-colour Heidelberg Speedmaster SM 102 with CutStar this was back in may

sleepdog
14-09-2010, 11:00 PM
it appears the its only worth $16 million not $40 million

Alan3285
15-09-2010, 09:00 AM
it appears the its only worth $16 million not $40 million

Why do you say that?

Thanks,

Alan.

sleepdog
15-09-2010, 04:28 PM
Why do you say that?

Thanks,

Alan. check out PRINT 21 there's an article about
ACP mega magazine ten year print tender
Tuesday, 14 September 2010

Newman
16-09-2010, 12:26 PM
check out PRINT 21 there's an article about
ACP mega magazine ten year print tender
Tuesday, 14 September 2010

While the total number of bond holders was in decrease now 70 people (68 last year and 63 in 2008) hold 100,001+ bonds each, accounting for 39% of total bonds.

It seems that small bond holders tend to give up and large holders stick with, believing or hoping Blue Star would recover in the future.

For those who recently bought bonds at 20 cents there is little to worry about. Getting 20 cents back would not be difficult if Blue Star goes to receivership because writing off its intangible assets would still see assets = liability.

sleepdog
22-09-2010, 11:01 AM
yet another print company bites the dust Goanna Print is the latest print company to fail

Silverlight
22-09-2010, 11:26 AM
At current price (15 cents) the bonds, however, could be worth to buy. If lost it is just 15 cents. If you have the good luck you migh get back 50 cents.

The casino has better odds, if black or red comes up twice in a row, your 15 cents would be 60 cents.

Alan3285
22-09-2010, 11:32 AM
The casino has better odds, if black or red comes up twice in a row, your 15 cents would be 60 cents.

Good thinking - Extrapolating your 'analysis' the lottery is better than the casino though: PowerBall only has to come up once, and your return is hundreds of thousands times.

Alan.

sleepdog
19-10-2010, 10:59 PM
a wise man once told me if you sell a $1 for 95c you will go broke

Newman
29-10-2010, 01:17 PM
Good thinking - Extrapolating your 'analysis' the lottery is better than the casino though: PowerBall only has to come up once, and your return is hundreds of thousands times.

Alan.

Private Equity CHAMP (Blue Star Group's ultimate parent) sold "Study Group" in July 2010 for $660 m. It was bought in September 2006 at $176 m.

Giving the stabilisation of economy and printing business in Australia and NZ, I would think the chance of getting money back from BLU020 bonds is definitely greater than winning a lottery. Indeed, the bonds are traded at $0.28 today, compaed with $0.18 a few weeks ago!

Alan3285
29-10-2010, 02:43 PM
Private Equity CHAMP (Blue Star Group's ultimate parent) sold "Study Group" in July 2010 for $660 m. It was bought in September 2006 at $176 m.

Giving the stabilisation of economy and printing business in Australia and NZ, I would think the chance of getting money back from BLU020 bonds is definitely greater than winning a lottery. Indeed, the bonds are traded at $0.28 today, compaed with $0.18 a few weeks ago!

Yep - I am already long on BLU020 so I haven't been acquiring over the last few months, but anyone who is buying at less than 35c / dollar is getting quite a bargain potentially.

Alan.

sleepdog
30-10-2010, 11:26 AM
so whats the chances of champ selling Blue Star ???

Alan3285
30-10-2010, 01:45 PM
so whats the chances of champ selling Blue Star ???

Who are you thinking might be a purchaser?

Alan.

Enumerate
07-11-2010, 04:10 PM
News report mooting the restructuring of the bonds:

http://www.stuff.co.nz/business/4317053/Blue-Star-works-on-bond-deal

Alan3285
07-11-2010, 04:54 PM
News report mooting the restructuring of the bonds:

http://www.stuff.co.nz/business/4317053/Blue-Star-works-on-bond-deal

Good spotting Enumerate - thanks!

I'm feeling cynical today, so how's this for a conspiracy theory:

If I was an external shareholder, I might want that thrown around to try to depress the price of the bonds before picking them up even more cheaply.

Alan.

Enumerate
07-11-2010, 05:38 PM
Well, it is true that reasonable volumes of the capital bonds have been traded recently.

Last year they manged to pay down $20m of senior debt and leases. This was offset against increased subordinated debt by way of accrued interest. Hence, even in the worst of times, the business can generate cash.

I reckon they will be able to do another $20m of senior debt payment by March 2011. Given the EBITDAR should also show a significant improvement - I believe the senior debt covenants will be healed.

At this stage, capitalising the interest and resuming interest payments on extended term capital bonds will be the basis of the deal.

I certainly have no objection to capitalisation and/or extension ... any thought of forgiveness of interest ... well this would be completely unacceptable.

Alan3285
08-11-2010, 09:18 AM
I certainly have no objection to capitalisation and/or extension ... any thought of forgiveness of interest ... well this would be completely unacceptable.

Agreed on those.

Do you know what happens from a tax perspective if there *was* a forgiveness of interest?

The interest accrued has been taxable up to now? If so, then would forgiveness be deductible?

Thanks,

Alan.

Dubdee
08-11-2010, 02:27 PM
Agreed on those.

Do you know what happens from a tax perspective if there *was* a forgiveness of interest?

The interest accrued has been taxable up to now? If so, then would forgiveness be deductible?

Thanks,

Alan.


Forgivenees of interest would create taxable income for the beneficiary but not necessarily a deduction for the investor. Only available if bonds held on capital account.

Alan3285
08-11-2010, 02:52 PM
Forgivenees of interest would create taxable income for the beneficiary but not necessarily a deduction for the investor. Only available if bonds held on capital account.

Yeah - so if the holder is a 'trader' in bonds, and declaring capital gains as income, then it would be deductible, else not I guess.

Alan.

sleepdog
08-11-2010, 05:51 PM
does anyone smell a takeover

Alan3285
08-11-2010, 09:57 PM
so whats the chances of champ selling Blue Star ???
Who are you thinking might be a purchaser?

Alan.


does anyone smell a takeover

Still don't see who you think is the potential buyer?

Alan.

Enumerate
09-11-2010, 09:00 AM
PMP and GEON are the big boy printers in the Australia/New Zealand market.

I have not done any detailed research - but I would speculate than neither of them has the balance sheet to takeover Blue Star.

Why would Champ want to sell? The restructuring investment and the decimation of the smaller competitors means that they are poised to do well out of any recovery in their print markets.

Blue Star, with private equity backing, is actually in a better position to buy some more market share. However, this is also unlikely given the high levels of debt on the balance sheet.

Newman
09-11-2010, 10:36 AM
PMP and GEON are the big boy printers in the Australia/New Zealand market.

Blue Star, with private equity backing, is actually in a better position to buy some more market share. However, this is also unlikely given the high levels of debt on the balance sheet.

I cannot find an evidence that CHAMP is backing Blue Star! Indded, CHAMP has been extracting money out of Blue Star, for example, by selling its (worthless) McMillan Print to Blue Star. CHAMP is not short of cash. It sold its StudyGroup in July 2010 for $660 m. It just does not want to put more money into Blue Star, at least now!

sleepdog
09-11-2010, 04:46 PM
suppose a single player were to buy a majority of the shares how much control of blue star would the have ?????

Alan3285
09-11-2010, 06:34 PM
suppose a single player were to buy a majority of the shares how much control of blue star would the have ?????

A majority of the shares in Champ?

sleepdog
09-11-2010, 09:30 PM
THE PRINTING INDUSTRY IS SLOWLY SHRINKING WITH A PAPERLESS ATTITUDE PRINT RUN ARE DECLINING IN FAVOR OF THE INTERNET ,HELL OF A LOT CHEAPER SO WHERE DOES THE MONEY COME FROM YES YOU THE INVESTOR SORRY BUT THERE IS NO END OF THE RAINBOW NO POT OF GOLD (and how much did they buy mcmillan for and the dead money for chippendale press ????)

Alan3285
09-11-2010, 10:28 PM
THE PRINTING INDUSTRY IS SLOWLY SHRINKING WITH A PAPERLESS ATTITUDE PRINT RUN ARE DECLINING IN FAVOR OF THE INTERNET ,HELL OF A LOT CHEAPER SO WHERE DOES THE MONEY COME FROM YES YOU THE INVESTOR SORRY BUT THERE IS NO END OF THE RAINBOW NO POT OF GOLD (and how much did they buy mcmillan for and the dead money for chippendale press ????)

That is true, but it has been true for a long time now - remember all the talk about 'paperless' offices in the early nineties?

In fact, paper use has rocketed in offices due to the reduction in the cost of printers and ink / toner.

Print volumes are down across the board between mid 2008 and today, but that is mainly a macro-economic issue.

It does depend on where you are positioned though. Packaging and branding print (on and in products) is probably not changing much, whereas anyone doing pre-printed letterhead (for example) is definitely in a declining industry.

Mass printing of publications is also under pressure with news and magazine volumes being hit by online competition.

If I look at BlueStar specifically, the mass printing area gives some medium to long term concern, and whatever bog-standard offset printing they have (not sure what portion of their business it accounts for?) is also under long term decline, whereas their label printing business is likely strong into the long term, since that is where manufacturers are doing their branding and regulatory things, so probably steady or even increasing volumes there (assuming BS can at least hold their own against the competition).

What do others think?

Alan.

sleepdog
10-11-2010, 05:31 PM
very true Alan the print industry has been going south since the the mid 90's sheet feed presses I think are a thing of the past with web presses now producing as good print quality at a faster speed , with a greatly shrinking market I don't think there is room for to many big players (GEON BLUESTAR PMP) with PMP by far the biggest safe as I think that brings it down to GEON and BS now that GEON has come clean with its goodwill I hear they are doing great guns ,it may just be me but BS seem to be secretive with what is going on but that maybe the way they like it ?????

Enumerate
25-11-2010, 09:34 AM
IPMG showing signs of recovery ...

http://www.proprint.com.au/News/239452,ipmg-back-in-the-black-as-revenues-hit-509m.aspx

Newman
25-11-2010, 10:49 AM
IPMG showing signs of recovery ...

http://www.proprint.com.au/News/239452,ipmg-back-in-the-black-as-revenues-hit-509m.aspx

IPMG has similar revenue and staff number as Blue Star. What about their debt structurs? In August, PMP reported a net profit of $20m, largely because it dramatically reduced interest cost. Blue Star is very different. Unless its shareholders inject new equity its interest cost will reach to an unsustainable level.

sleepdog
26-11-2010, 01:56 PM
anyone know why such a large volume on the 1/11/10 (670,000) ???

Newman
29-11-2010, 08:27 AM
anyone know why such a large volume on the 1/11/10 (670,000) ???

In late October the Government paid ut $1.3 billions to South Canterbury Finance investors. If 0.01% of the money went to high-risk bonds, it would be enough to buy 670000 BLU020 bonds. There are people who can afford a high-risk while choosing an investment.

On November 15 Silver Fern Farm paid out $75 million for its mature bonds, and next month Redgroup retail will have $36 million bonds mature. Again, I would guess a small number of investors will buy high-risk bonds such as BLU020 and STL030.

Enumerate
29-11-2010, 09:45 AM
I always have a speculative component to my portfolio. You have got to say that the market is pricing BLU020 as if they are in receivership. There are 105m of these bonds - by mid December they will have accrued about 20c per bond in arrears interest.

My view is that the bond covenants will be healed by March 2011.

Is anyone else waiting for the holding company financials to be posted at the Companies Office?

Dubdee
30-11-2010, 01:12 PM
This is my biggest speculative fixed interest high yield position. Whilst a breach of covenents isnt fatal its not a good sign. The key question is are net cash earnings positive. If so I dont particularily care if note interest is suspended as long as the spare cash from operations is being swept into reducing prior ranking bank debt.

One rumour I did hear was that BLU might be recapped by a proposal to convert notes into shares. Not sure if that has any substance but I probably would not be keen on that. Not the deal I signed up to. I would much rathe the private equity guys tossed in some more cash. Is not that they are short of it.

Enumerate
30-11-2010, 02:52 PM
I dont particularily care if note interest is suspended as long as the spare cash from operations is being swept into reducing prior ranking bank debt.


You have good instincts ... watch the cashflow.

They seem to be generating about $20m in free cashflow (payments to the senior debt and equipment lease payouts).

I think that the trust deed is very good - the stepup interest rates do offer some compensation for the increased risk to the business. Clearly, management would love to heal the covenant breach, pay arrears interest and return to a more normal commercial interest rate.

The equity swap rumour does not make complete commercial sense - unless the Blue Star Group Holdings Ltd partners are planning on listing. Why have all the headaches of an effective public company without the liquidity or value premium? The business will recover with the recovering economy - the efficiency/cost reduction gains and "Agile" innovation should combine to drive EBITDAR up without a full proportional increase in costs ... more free cash flow!

Newman
30-11-2010, 08:14 PM
[QUOTE=Dubdee;328032]This is my biggest speculative fixed interest high yield position. Whilst a breach of covenents isnt fatal its not a good sign. The key question is are net cash earnings positive. If so I dont particularily care if note interest is suspended as long as the spare cash from operations is being swept into reducing prior ranking bank debt.

You are assuming that you will get paid the accured interest one day. This is a high risk assumption because Blue Star made after tax loss for the year ended in August 2010. Further, its ultimate owner is extracting cash out of the company by related party transactions such as dumping the valueless MacMillian print to Blue Star. Because of this trasaction, the intangile asset of Blue Star increased by about $70 million.

Some guys might think the new contract with ACP would help Blue Star a lot. But remember Blue Star has to invest a lot to buy equipment for this new job, thus creating further cash-flow problem. Unless its owners put more equity in there is little chance to resume interest payment to bond holders in 2011 or 2012. It simply does not have the cash fro such a payment even it banks allow it to do.

First NZ Capital produced a good report on Blue Star in September. You should read it if you are going to invest on BLU020 bonds.

Dubdee
01-12-2010, 08:51 AM
Newman my undertanding of the private equity LBO model is that you avoid paying tax as long as possible.This is ususally done in the form of replacing what we would call Equity with a form of shareholder supplied deeply subordinated debt which is tax deductible.

I still feel the free cashflow form operations is the key metric to watch. Profit is just a matter of opinion. Not paying tax seems like a great idea to me. Yes there are questions around the industry and there is no doubt things are tough. So if EBITDA was negative I would be pretty stressed. Still as you say the capitalising debt adds additional risk and I wind up paying tax on that nowwhich is a bit painful.

Havent seen the FNZ report would be keen to have a look. They used to be big fans of BS but relations have cooled though I note some of their staff are listed under the top holders (Smith & Robinson) and FNZ noms are still the largest holder

Enumerate
06-12-2010, 08:18 AM
The only reason First NZ Capital got in Blue Star, in the first place, was they heard that Gordon Gekko was buying.

They went bearish as soon as he started selling.

sleepdog
08-12-2010, 11:06 PM
Considering Blue Star’s hefty market share and
trans-Tasman coverage, its chief executive deserves
a top 10 place on this list. But as any visitors to
ProPrint’s online forums would know, it’s unlikely
he’d rank so highly in an industry popularity
contest. Mitchell took the reins at a tough time for
the industry. The impact of these conditions have
been well illustrated in the group’s financial results.
Yet few are sympathetic (closing the McMillan Print
facility was never going to win Mitchell acclaim
from the old guard). With poor results in sheetfed,
Mitchell is looking to Webstar for some solace. The
web arm gave Blue Star its best news of 2010 when
it won the exclusive contract for ACP in NZ. A nod
also to Warwick Hay and Noel Rodgers on this front.
Early 2011 should see the opening of a shiny new
facility in Auckland. Former IT man Mitchell will also
remember 2010 for the expansion of his ‘Agile’
strategy. Whether this makes up for some major
print management losses is another matter.

Enumerate
14-12-2010, 11:52 AM
Interesting development ....

Blue Star Group Investments Ltd (the owner of Blue Star Group Ltd - the charging group for the BLU020 bonds) has increased its capital, on the 29th of November 2010, by 30million shares. This was achieved by issuing new shares.

So, we know the owner of Blue Star Group Ltd has some spare cash ....

I wonder what they intend using this cash for?

Toot toot ...

Newman
14-12-2010, 12:25 PM
Interesting development ....

Blue Star Group Investments Ltd (the owner of Blue Star Group Ltd - the charging group for the BLU020 bonds) has increased its capital, on the 29th of November 2010, by 30million shares. This was achieved by issuing new shares.

So, we know the owner of Blue Star Group Ltd has some spare cash ....

I wonder what they intend using this cash for?

Toot toot ...

Blue Star's senior debt is due in March 2012. I would be surprised if Banks do not require more equity injection before give it a new loan.

By middle 2011 the unpaid interest on BLU020 bonds would be close to $30 millions. Would most bondholders agree an extention of mature date without being given some incentives?

Alan3285
14-12-2010, 12:26 PM
I'm being lazy and not at my desk, so I'm asking you Enumerate, but are they at $1 per share = $30m, and if so, does that provide additional security for the BLU020s?

Thanks,

Alan.

Enumerate
14-12-2010, 01:11 PM
I'm being lazy and not at my desk, so I'm asking you Enumerate, but are they at $1 per share = $30m, and if so, does that provide additional security for the BLU020s?


The Companies Office documentation does not quote the consideration paid for the issued shares.

However, back in June 2009 BSGI issued about 7.5m shares and about $7.5m was injected into BSG. Hence, following this logic ... we should see $30m injected into BSG following the issue of 30m new shares.

I reckon that this new equity, if it actually ends up in BSG, along with positive cashflow from 2011 financial year will see the banking covenants healed and enough cash to pay the accrued interest. Restoring the banking covenants and stepping back to the 9.1% interest rate will be significant positive developments for Blue Star.

Check the developments on the Companies Office ...

As I said before .... Toot toot!

Newman
14-12-2010, 04:07 PM
The Companies Office documentation does not quote the consideration paid for the issued shares.

However, back in June 2009 BSGI issued about 7.5m shares and about $7.5m was injected into BSG. Hence, following this logic ... we should see $30m injected into BSG following the issue of 30m new shares.

I reckon that this new equity, if it actually ends up in BSG, along with positive cashflow from 2011 financial year will see the banking covenants healed and enough cash to pay the accrued interest. Restoring the banking covenants and stepping back to the 9.1% interest rate will be significant positive developments for Blue Star.

Check the developments on the Companies Office ...

As I said before .... Toot toot!

Anyone knows if Blue Star is required to diclose share issuing to the market? in 2009 it was disclosed.

Alan3285
14-12-2010, 11:33 PM
Thanks Enumerate.

Enumerate
24-12-2010, 01:06 PM
Careful students of Blue Star will have noted advice, from the Companies Office, of receipt of final accounts on the 23rd December for Blue Star Group Holdings Ltd. (This is the holding company that owns the company that owns Blue Star Group Ltd.).

As yet, the scanned image of the accounts has not been posted. I expect that this will be forthcoming in the near future. Further clues and hints as to BLU020 interest status will no doubt follow from a careful read.

Consider this your Christmas present from the Companies Office.

(Makes better reading, I am sure, than the thin gruel Minimoke will be dining out on in terms of the Southbury Receivers report).

Newman
12-01-2011, 04:04 PM
Careful students of Blue Star will have noted advice, from the Companies Office, of receipt of final accounts on the 23rd December for Blue Star Group Holdings Ltd. (This is the holding company that owns the company that owns Blue Star Group Ltd.).

As yet, the scanned image of the accounts has not been posted. I expect that this will be forthcoming in the near future. Further clues and hints as to BLU020 interest status will no doubt follow from a careful read.

Consider this your Christmas present from the Companies Office.

(Makes better reading, I am sure, than the thin gruel Minimoke will be dining out on in terms of the Southbury Receivers report).

The financial statements to 30 June 2010 of the company are now available on www.companies.govt.nz.

The company reported an after tax loss of $75.6 m, including a writedown of goodwill of $60.6m. After the witedown the equity set is only about $27m. Remember the company still values its intagible assets at $229.7 m.

Yesterday BLU020 bonds were traded in large amounts at 26 cents per dollar (which includes 21 cents of unpaid interest. The net value of the bonds, thus, is 5 cents). This was a sharpe decrease from about 33 cents before New Year. The market has judged the financial statements in this way.

Newman
18-01-2011, 03:36 PM
Yesterday Chris Lee's newsletter had some guesses on the extention/repayment of Blue Star capital bonds.

But, most important has anyone actually read the Trust Deed of BLU020? Do you have a copy of the Trust Deed for others to view? I searched the Internet, including that of Companies office but did not find one.

Does the Trust Deed allow extension of the capital bonds? If yes, what percentage of vote by bondholders is required before it can be extended? Who are the largest 70 bondholders with 100,000+ bonds each? Where does the money come from if Blue Star is allowed to resume payment of interest on the bonds?

For its shareholders, CEO, and banks as long as Blue Star survives for 2 more years their own interests will be met before the boldholders: shareholders get the full payment for the worthless MacMillian print sold to Blue Star; CEO and its managers get well-paid salaries; and the banks get their money back. However, there could be little left to bondholders because plants and printing equipment do not worth a lot when the sector has over-capacity.

If anyone find a copy of BLU020 Trust Deed please share it with others.

Enumerate
19-01-2011, 06:36 AM
Trust Deed - Blue Star Group Limited - 9th November 2005

http://www.business.govt.nz/companies/app/service/services/documents/C67C4742B522BC5A2BBB5E9960ECAC68

Yes, have read it.

Link above

No, no extension - however, they can offer substitute securities

Ask a friendly broker to get you the top 70 and post it here ... (it is a public register)

Blue Star Group Investments ... we talked about this above

Enumerate
19-01-2011, 06:48 AM
Just read the Michael Warrington paragraphs on Blue Star. (Chris Lee site www.chrislee.co.nz Market News)

Classic tall poppy chopping - complaining about Management salaries. I for one have no problem with Blue Star paying market salaries to skilled managers ... the only problem I have is paying market salaries to unskilled (and ineffective) managers. I have no reason to doubt that Blue Star Managers are unskilled or ineffective. If I wanted a company of the latter type ... I'd invest in Telecom.

I suppose that Lee and Warrington have to play to their audience ...

I, for one, think that Blue Star has problems with it's capital structure. I believe the business is sound and recovering. This beats having the problems around the other way.

Enumerate
06-02-2011, 09:06 AM
Blue Star wins a major sheetfed contract at Tabcorp - worth about $10m pa.


The contract has been won by Blue Star's IQ print management arm.
Some compensation for major losses in 2010, including Vodafone-Hutchison going to Business Print Australia (http://www.proprint.com.au/News/173241,bpa-picks-up-major-telco-pm-contract.aspx) and Westpac-St George being picked up by Stream Solutions (http://www.proprint.com.au/News/230691,stream-solutions-adds-further-anz-contract-to-bluechip-client-wins.aspx). Sheetfed print was the problem area reported at the half (probably because of these contract losses) - revenues will start to flow from June 2011.


Note the article in ProPrint:


http://www.proprint.com.au/News/246749,moore-loses-multimilliondollar-tabcorp-contract-to-blue-star.aspx

Enumerate
18-02-2011, 08:12 PM
Another $4.2m print contract extension in the bag ...

http://www.proprint.com.au/News/248552,immigration-department-awards-42m-contract-to-blue-star.aspx

Newman
21-02-2011, 01:30 PM
PMP Ltd (the only listed printing business on www.ASX.com) reported a better EBIT (before significant items) to 31 Dec 2010 of A$25.3 m, an improvement of 7.2% over the same period of last year.

If PMP can be used as an indicator of printing business in Australia and NZ, Bluestar should report a similar improvement at the end of this month.

Enumerate
23-02-2011, 08:37 PM
Last year, the half year results were announced on the 24th of February. I wonder if this much anticipated result will follow at about the same time?

Enumerate
24-02-2011, 08:43 PM
Chris Lee is passing comment on the prospects of Blue Star ...


www.chrislee.co.nz (http://www.chrislee.co.nz)
Blue Star Group bond-holders will be receiving news soon that will probably confirm that its core business, printing, is in decline. The half-year report is now due.

I have no insight into Blue Star Group’s future but I will be most surprised if Blue Star reveals optimism, or provides investors with real comfort.

My expectation is that in 2012, when the bonds are due to be repaid, Blue Star will either get a capital injection from its US owners, or it will seek to gain a rollover of its funding from the bond-holders.

Its bankers will not be sweating. They rank ahead of bond-holders, and their exposure is reducing.

Blue Star has seriously misread the market for some years and has had inadequate support from the US private equity fund that owns it.

Its communications have been insulting.

If it were to recover fully and maintain its market dominance in printing, it would be an astonishing reversal.

Disclosure: I own Blue Star bonds.


My view differs in that I think there is reason for some optimism. It is possible that the senior debt banking covenants are healed - it is possible that the $30m addition capital in Blue Star Group Investments Ltd is earmarked to clear the subordinated debt arrears.

I think Blue Star need to move sooner, rather than later, to restore normality to bond payments. If they are to have a serious chance at rolling over the debt to an extended term - they need a bit of goodwill in the "pot". They would also save about $4m a year in penalty interest payments.

I am not certain we will see the restructure proposal in March. However, unlike Mr Lee, I believe there is a significant probability that we will see some good news at the half year results.

Also, I wonder if there have been some delays since Perpetual, the Trustee, were headquartered in the PGG building in Christchurch.

Newman
25-02-2011, 10:08 AM
Chris Lee is passing comment on the prospects of Blue Star ...



My view differs in that I think there is reason for some optimism. It is possible that the senior debt banking covenants are healed - it is possible that the $30m addition capital in Blue Star Group Investments Ltd is earmarked to clear the subordinated debt arrears.

I think Blue Star need to move sooner, rather than later, to restore normality to bond payments. If they are to have a serious chance at rolling over the debt to an extended term - they need a bit of goodwill in the "pot". They would also save about $4m a year in penalty interest payments.

I am not certain we will see the restructure proposal in March. However, unlike Mr Lee, I believe there is a significant probability that we will see some good news at the half year results.

Also, I wonder if there have been some delays since Perpetual, the Trustee, were headquartered in the PGG building in Christchurch.

Very recently another private equity-backed printing company, Geon, extended its bank debt from 2013 to 2015, and reduced its debt obligations.

As Blue Star's bank debts are due in March 2012 it should have started negotiation with banks. Would Blue Star follow Geon's step is a question.

Enumerate, where did you get the $30m number?

Enumerate
25-02-2011, 10:56 AM
Enumerate, where did you get the $30m number?

From the Companies Office .... Blue Star Group Investments Ltd ... owner of Blue Star Group Ltd ... increased capitalisation from about $50m to $80m in late November.

http://www.business.govt.nz/companies/app/ui/pages/companies/1893713/ (http://www.business.govt.nz/companies/app/ui/pages/companies/1893713/1451277/entityFilingRequirement?backurl=%2Fcompanies%2Fapp %2Fui%2Fpages%2Fcompanies%2F1893713%2Fdocuments)

[oops - you need to navigate back to the document list and choose the top document]

Newman
25-02-2011, 03:13 PM
From the Companies Office .... Blue Star Group Investments Ltd ... owner of Blue Star Group Ltd ... increased capitalisation from about $50m to $80m in late November.

http://www.business.govt.nz/companies/app/ui/pages/companies/1893713/ (http://www.business.govt.nz/companies/app/ui/pages/companies/1893713/1451277/entityFilingRequirement?backurl=%2Fcompanies%2Fapp %2Fui%2Fpages%2Fcompanies%2F1893713%2Fdocuments)

[oops - you need to navigate back to the document list and choose the top document]

The annual report Blue Star at the end of June 2010 shows contributed equity of $30.670 m when its share number was 55.99 millions. The new equity injection in association of the increase in shares from 55.99 m to 85.99 m could be $30 m or much less than that. Amyway, we should know more when the half-year result is released probably in the next week.

Enumerate
25-02-2011, 06:05 PM
The annual report Blue Star at the end of June 2010 shows contributed equity of $30.670 m when its share number was 55.99 millions. The new equity injection in association of the increase in shares from 55.99 m to 85.99 m could be $30 m or much less than that. Amyway, we should know more when the half-year result is released probably in the next week.

You can also trace back to when 7.4m shares were issued and $7.4m was raised ... I am very sure that this is $30m. Also, this is Blue Star Group Investments Ltd - the holding company for Blue Star Group Ltd - the charging group for the bond holders. Blue Star Group Holdings Ltd is the senior charging group - they own BSGI and all other subsidiaries.

Enumerate
26-02-2011, 08:54 AM
Also, I forgot to correct a point made by Chris Lee ...

CHAMP is Australian private equity - not American. They are associated with Castle Harlan, the American PE firm. If you look at the register of Blue Star Group Holdings Ltd - you will see a significant investment presence from Sturgess and other New Zealand based interests. Hence, the way Lee characterises the firm - as ... aloof, arrogant, American ... is not right, in my view.

Enumerate
01-03-2011, 08:51 AM
Massive volume transacted this morning ... clearly someone knows something and it does not appear to be good news :(

Enumerate
01-03-2011, 07:53 PM
Looks like it is, indeed, good news!

http://www.nzx.com/markets/NZDX/BLU020/announcements/4718663/Blue-Star-Group-improves-interim-financial-performance

Revenue steady for the half - but a small operating profit was produced! Major gains on foreign currency bring the profit up to over $8.4m!

Looks like a $5m dent has been made in lease obligations - but the senior debt is roughly the same as the last half. Cash flow shows the business continuing to generate about $17m in cash surplus.

Reading between the lines:

- they are in negotiations with the senior lenders
- shareholders are prepared to inject further capital (we know this from the $30m that appeared in BSGI)
- once the senior lenders have terms to extend from 2012 to 2015 .... looks like we will get a proposal to restructure the subordinated bonds. I expect that this will be an extension of the term of the bonds and payment of arrears interest - to normalise the interest rate from 13.1% to 9.1%

Finally, we have this:


In the meantime the Board of Blue Star suggests Bondholders and potential investors should take all of these factors into consideration when deciding to buy, sell or hold Blue Star Subordinated Capital Bonds.

Enumerate
01-03-2011, 08:02 PM
More detail in the MD commentary:



Update on capital structure
Blue Star has initiated discussions with its banking group and major shareholders well ahead of its senior
debt facilities maturing in 2012. As at the date of these interim financial results Blue Star’s senior lenders
have conditionally agreed to the terms of a renegotiated senior debt facility, including among other things an
extension in the maturity date of the senior debt facility to February 2015.
The terms of the new arrangements approved by Blue Star’s senior lenders are conditional upon the
satisfaction of various requirements, most particularly:
- further shareholder cash contributions, which the major Shareholders have agreed to provide subject
to the satisfaction of certain conditions, including but not limited to, the approval of bondholders to
amended terms of the Subordinated Capital Bonds; and
- Bondholders approving a restructuring of the terms of the Subordinated Capital Bonds, including an
extension and other concessions.
Further detail on the proposed amended terms for the Subordinated Capital Bonds will be provided
separately, as soon as these have been finalised. Following announcement of the details of the proposed
amended terms of the Subordinated Capital Bonds, Blue Star will organise a meeting to seek approval from
bondholders to the proposed amendments. In the meantime the Board of Blue Star suggests Bondholders
and potential investors should take all of these factors into consideration when deciding to buy, sell or
hold Blue Star Subordinated Capital Bonds.


So, it is "an extension" (sounds ok, so far) ... and "other concessions" (hmmmm .... don't like the sound of this).

I for one will not be happy taking one of those "ugly banker haircuts" like the one Terry Serepisos has ...

Newman
02-03-2011, 08:27 AM
More detail in the MD commentary:



So, it is "an extension" (sounds ok, so far) ... and "other concessions" (hmmmm .... don't like the sound of this).

I for one will not be happy taking one of those "ugly banker haircuts" like the one Terry Serepisos has ...

The half-year results look promising, largely helped by the lower NZ$/A$ exchange rate in the last 6 months. Giving that Blue Star survived when its finance cost was 13.1% (for bonds) bond-holders can be more optimistic now that it can survive in coming years when its finance cost is reduced at least by $7m/year after the bonds are renewed at a lower interest rate.

I guess bond holders will be paid the accured interest (about 24 cents per dollar) when they agree an entension of 3 years. The interest rate could be mcuh lower, say 7-8%.

Those who bought BLU020 bonds in the last 12 months at a cost of 20-35 cents/bond would be the winner.

Alan3285
02-03-2011, 09:06 AM
Just thinking ahead, how could they 'encourage' bondholders to accept "other concessions" (whatever they might be)?

What options do could they offer?

1) Roll-over at a low interest rate

2) Take a cash payout

3) Swap for shares

Why would anyone not just go for option (2) if offered?

If there is no cash offer on the table, and it comes to (1) or (3), there is no listed BLU equity is there?


Alan.

Enumerate
02-03-2011, 10:22 AM
Just thinking ahead, how could they 'encourage' bondholders to accept other concessions" (whatever they might be)?


The main encouragement is the introduction of new capital. This gives the subordinated bond holders extra security as they have priority over this yet to be introduced cash.

The group in the driver seat are the banks. They have agreed to extend the senior debt subject to a number of secret conditions. It is now the job of Blue Star Directors to meet these conditions. Clearly, the Directors are eager to "share the pain" across equity and subordinated debt holders. Subordinated debt holders are likely to have a different viewpoint.

The bankers are imposing an "ugly banker haircut" on the equity and debt holders. We are now in a negotiation process to see who emerges with the ugliest look.

Enumerate
02-03-2011, 06:53 PM
Interesting rumour:

http://www.i-grafix.com/index.php/news/australia/bankers-speculating-blue-star-to-buy-geon.html

Newman
04-03-2011, 10:16 AM
The $/A$ gets to 17 year low. As Blue Star has more revenue and assets in Australia than in NZ it would be reseonable to expect that the 2nd HY results be better than the 1st HY ones, even if nothing is improved.

If Blue Star pays off accurred interest on bonds it would save the penalty of $5.2 m/yr (4% x $130 m). Its new HY accounts suggest that banks have relaxed debt/EBITDRA ratio, which would make it less possible have to pay penalty interest on its bonds.

Given that 3 year SWAP rate is only 3.78% Blue Star would not have to pay a good interest rate if the bonds extended. Adding a 3% margin the interest would be 6.78%, much lower than the original rate of 9.1% and the current rate of 13.1%.

winner69
16-03-2011, 05:38 AM
Shoeshine in the NBR mentioned the possibility that they might consider writing off the penalty interest that has accrued so far (interest at that rate is not sustainable) but also reckons that bondholders would not want to convert to shares

Be interested in what they do offer you guys .... but no matter what please play hardball

Newman
16-03-2011, 08:31 AM
Shoeshine in the NBR mentioned the possibility that they might consider writing off the penalty interest that has accrued so far (interest at that rate is not sustainable) but also reckons that bondholders would not want to convert to shares

Be interested in what they do offer you guys .... but no matter what please play hardball

I think Shoeshine is helping Blue Star to get a better deal for shareholders. Any changes to bonds conditions require 75% of bondholders to approve. Which bondholder would agree to the write-off of accurred interest?

Recent progress on Geon worths attention. Geon is in worse position than Blue Star. But its banks agreed reducing Geon's debt for a potentila gain in share price in the future.

Blue Star has not announced its offer for an entension of bonds. I guess it is because Perpentual Trust has shortage of staff to deal with Blue Star's offer. Irongate Property is probably in a similar situation to get the Trust's approval for an extension of its bonds (STL030)

tim23
07-04-2011, 06:23 PM
Any bets when announcement due - must be next week or so?

tim23
17-04-2011, 05:54 PM
Just emailed the company to ask their definition of soon, that said that 1/3/11 to me thats not soon?

Newman
17-04-2011, 06:37 PM
Just emailed the company to ask their definition of soon, that said that 1/3/11 to me thats not soon?

I guess Blue Star wants to capitalise the unpaid interest, which would not be acceptable to the trustees and bond holders. That explains well why nothing has happened since March 1.

Newman
05-05-2011, 11:24 AM
Any new thoughts on the next move of Blue Star?

After its announcement in early March on likely extension of maturity date of BLU020 bonds Blue Star has not released any details on the terms and conditions for bondholders to consider for a vote. I guess its offer to the Trust for approval was not appealing at all. If Blue Star wants to pay bondholders the accrued interest (wholelly or partially) it does not need the approval of the Trust! Probably it wanted to extend the bonds for free. That would be unacceptable to the Trust and many bond holders.

One possible scenario would be: Blue Star keps lending money to its major shareholder (which is a de fact divident) and minimise the loss of equity capital of shareholders if the company eventually goes to receivership. Bond holders seem in a helpless position. It is hard to explain why nothing has happened if CHAMP intented a decent capital injection to Blue Star! Probably CHAMP was only willing to inject a tiny amount of money, trying to get bonds extended for free.

tim23
05-05-2011, 08:07 PM
I've emailed the CEO twice asking when "soon" was re announcement - no reply pathetic

Enumerate
05-05-2011, 08:26 PM
At the moment they have the senior loan covenant breach (senior debt to EBITDAR ratio of no more than 3.0). While this breach is maintained, it is impossible for them to payout the subordinated bond holders interest.

I believe that the senior money is due February, 2012. The subordinated bond money is due September, 2012. Clearly, they need the bondholder deal to be approved before February, 2012.

They are also gearing up for the web offset magazine work. They are spending serious money on new web offset capability, in Auckland, in support of this deal.

The following article contains some interesting perspective (it is badly researched and written - I don't agree with the conclusions - but has some interesting background):

http://www.proprint.com.au/InDepth/255291,is-financial-restructuring-all-it8217s-cracked-up-to-be.aspx

The bondholder deal is yet to be proposed and done. I do not think payout of the outstanding interest will happen (I am certain that the senior lenders will see to that). However, interest capitalisation and extension of the bond term until after the 2015 expiry of the proposed senior loan are the most likely changes to be proposed to the bondholders. (They better not be suggesting interest forgiveness - they will have a bondholder revolt at that "bridge too far").

A key issue will be: "how much new equity"? A decent amount of new equity - to fund the web offset developments - is likely. This will be an important measure of goodwill.

My pick is that something needs to happen before the 31 June (end of financial year). Otherwise, they will be getting tagged by the auditor.

tim23
06-05-2011, 08:08 PM
Thanks for the insight; whats with a CEO who can't be bothered answering an email - bad form!

Enumerate
06-05-2011, 09:03 PM
I left a message with his PA ... apparently she forwards the requests for information to Australia (where he is based) ... but even she was not confident I would ever get a reply.

You might not be able to influence when they propose a deal ... but you will have a say as whether that deal is acceptable! The bondholders need to agree to the revised terms or the senior lenders will not be making any changes to their terms.

I have seen the register of holders ... the dominant holders are associated with NZ First Capital (from memory) but the instrument is very widely held. I think it would be difficult to to align the top 20 holders and expect them to carry the meeting. When push comes to shove - the voice of even modest holders will count. After all, it may be necessary to send the deal back to the drawing board - if only to prove that the subordinated bondholders are actually key to the financial restructure. (Anyone remember Skellerup? - I did so enjoy being part of telling Goldman Sachs to sharpen the pencil).

Newman
07-05-2011, 07:55 PM
I left a message with his PA ... apparently she forwards the requests for information to Australia (where he is based) ... but even she was not confident I would ever get a reply.

You might not be able to influence when they propose a deal ... but you will have a say as whether that deal is acceptable! The bondholders need to agree to the revised terms or the senior lenders will not be making any changes to their terms.

I have seen the register of holders ... the dominant holders are associated with NZ First Capital (from memory) but the instrument is very widely held. I think it would be difficult to to align the top 20 holders and expect them to carry the meeting. When push comes to shove - the voice of even modest holders will count. After all, it may be necessary to send the deal back to the drawing board - if only to prove that the subordinated bondholders are actually key to the financial restructure. (Anyone remember Skellerup? - I did so enjoy being part of telling Goldman Sachs to sharpen the pencil).

The 2010 Annual report shows that among 2758 bond holders the largest 70 hold 39% of bonds. As any fundamental changes to the trust deeds of the bonds require 75% majority approval I would be surprised if Blue Star can get bonds extended for free. But as I mentioned before, the company is good at doing related party deals, delivering cash to its shareholders. Thus, it is still possible for bond holders to completely lose their money.

On the other hand, if bond holders refuse any change to the terms and conditions of bonds it would force share holders to inject more equity to pay at least a part of the accumulated interest. This payment could be only chance that bond holders can partially get their money back. After the bonds are extended bond holders have no other chance to influence Blue Star. With another 3 years, the shareholders have plenty of opportunities to get their money back, leaving nothing to bond holders. Banks would get their money back first, anyway.

Reports from NZ First Capital concluded that BLU020 is more a high risk share than bond.

Newman
08-05-2011, 10:11 AM
Rob Stock's article "Decision time for Blue Star backers" on today's Sunday Star Times suggests a few movers that Blue Star could consider.

Enumerate
08-05-2011, 09:16 PM
Reports from NZ First Capital concluded that BLU020 is more a high risk share than bond.

It is difficult to understand what they mean by this. BLU020's are not convertible to equity in any way shape or form. Maybe they mean that due to the suspension of the interest payments the price volatility has be very "equity like".

Valuing Blue Star like it was going out of business is a mistake. Rolling over maturity of the senior debt removes the most immediate albatross (senior debt was due in February 2012, the bonds due in September 2012). It sounds as if they have an agreement in principle to extend the maturity to 2015 subject to bondholder concessions.

The next albatross is the BLU020 maturity, so it looks like a proposal to extend this until past 2015 will be a key feature of the restructure.

For the past couple of years the bankers have been the only people making money at Blue Star. With the accruing interest, the BLU020 holders are slowly becoming the new equity owners.

There are two choices - to propose forgiveness of the penalty interest or to capitalise it. (I don't think the senior lenders will be happy seeing the subodinated bond holders remove cash from a company that cannot afford to part with any cash). I think proposing forgiveness would be suicidal. I for one would vote this down and I would try to convince everyone I knew with the bonds to do the same. I would rather face administration and wipe out the CHAMP equity rather than show the weakness and lack of resolve that forgiveness of interest would imply.

So, some form of capitalisation of interest is on the cards. There is no way this would be offered, directly. Maybe some indirect capitalisation via a CHAMP fund. This would be messy from a tax perspective, I think. It has to be a low probability. This leaves a new bond series ... interest capitalised by value or number. I wonder how this can be achieved without leaving the bond holders with a tax liability where there is no compensatory cash payment?

Finally, the interest rate. If they actually introduce sufficient amounts of new equity to surprise the analysts - they have bought some goodwill from the bondholders. This could justify resetting the new series interest rate lower than the nominal BLU020 9.1% rate. This would be a big drop from the current 13.1% penalty rate.

Printing is a capital intensive business. To make money as a printer, you have to be smart with your capital. This means that Blue Star will always have structured debt - this is the smartest way to lever up equity. There will also always be those willing to fund such a large manufacturing business - in NZ printing probably dominates the manufacturing sector when you remove the processing industries (milk, meat, etc.) which are very different from manufacturing. There will be a time in the future in which Blue Star will "gear up" rather than the current forced "gearing down".

So, last point - psychology. Do management think the BLU020 bondholders will meekly approve any derisory offer put in front of them? If they act in an arrogant fashion, get push back - they have destroyed the market for Blue Star subordinated debt. If they toady to the banks and try and "stitch up" the bond holders, get push back - same consequence. My personal pick is that these guys are professionals - I would expect a measured and sensible deal that charts a course the banks will swallow but wider industry commentators will approve. I hope they spend a few minutes thinking: "How would Brian Gaynor deal to this in the Herald?" before they put their name to a turkey proposal.

Enumerate
09-05-2011, 08:15 AM
What was in that Sunday Star Times article ... it really has the market spooked, it seems.

Newman
09-05-2011, 08:49 AM
What was in that Sunday Star Times article ... it really has the market spooked, it seems.

The article seems not available on the internet. In addition to bond extension, Rob Stock suggest the following possibilities:
- reduced interest rate (on the believe that in times of crisis retail investors focus on getting their capital back, and worry less about the interest)
- debt for equity swap (examples are Yellow Pages, Hanover Finance etc): accumulated interest for equity
- Blus star shares listed on NZX or NZAX

I wonder why is buying back bonds not an option if CHAMP intends to inject equity? This morning the bonds traded at 150% return, suggesting the bonds only worth the accumulated interest.

Enumerate
09-05-2011, 09:26 AM
I would love for Blue Star Group to be listed on the NZX. There is very little in the way of manufacturing industry in the market and Blue Star certainly has the scale and trans-tasman exposure. Blue Star would be "our" PMP.

However, I think this is a very remote possibility. CHAMP, as private equity, see a trade sale as their exit. A float would imply more long term hold investors in control. Also, the capital structure is wrong for a float - private equity like to gear up their investments and take a hands on role to directing management.

For these reasons, I cannot see a swap of accrued interest for an equity state. Personally, I wouldn't mind taking an equity exposure - even through a CHAMP fund. "If you can't beat 'em - join 'em". I don't know how the tax situation would work out, with this. Nor do I suspect that it is even on the minds of the Blue Star Directors.

Remember, these guys know everything there is to know about this business. We know what we get fed, through annual reports. You do not put the money these guys are putting into the Web offset/heatset business thinking that the company might fail. However, this information asymmetry might tempt them to "stitch up" the bond holders - after all, the current market sees fear as the dominant emotion. Hence, I think it is imperative that the bond holders use the meeting to ask the questions that need to be asked and to reject the deal if there is a "whiff" of unfairness.

Enumerate
09-05-2011, 01:13 PM
Finally found the article in the online version of the Sunday Star Times. (Choose 8 May in the Calendar tool and the business section from the table of contents; you can scroll through the paper using the "page turner" tool - must admit, it is a nice online presentation):

http://fairfaxmedia.newspaperdirect.com/epaper/viewer.aspx

I can see why there was a rush to the door this morning. Rob Stock is very negative, implying the forced capital restructuring and implying diminishing prospects. My view is that this is a company I would actually like to be invested in because of recovery prospects.

Anyway ... there it is, for what it's worth. Kudos to Newman for spotting it ...

Newman
13-05-2011, 08:46 AM
"Blue Star investors sucker-punched by unusual tax"

http://www.nbr.co.nz/article/blue-star-investors-sucker-punched-unusual-tax-92986#comment-121682


This article on National Business Review implies that the unpaid interest on Blue Star bonds will be capitalised. Any other thoughts?

Enumerate
13-05-2011, 09:08 AM
Any chance of a summary, Newman?

If the interest is capitalised, depending on the details, this could generate a tax liability. For those on accrual, this will be nothing out of the ordinary. However, those on capital, it will generate a large liability.

Interest has been accruing since June 2009. If the recapitalisation proposal is approved for June 2011 - this will trigger payment of 1 x quarter at 9.1%pa and 7 x quarter at 13.1%pa - compounding.

I calculate this to be 28.5% payable in accrued interest.

In concrete terms, if you currently have 100,000 at $1 face - you will get an interest "payment" of $28,500. If this is capitalised, in certain circumstances, a tax liability will be owed but you will have 128,500 bonds at $1 face.

There are two points to consider:

1) On the positive side, it is expected that interest payments will resume; depending on your tax circumstances this positive cash flow could be expected to cover the negative cash flow of the tax payment on the "capitalised" interest;

2) The capital price of the bonds would be expected to rise; leading to a much improved secondary market in the new series of bonds.

Newman
13-05-2011, 09:24 AM
[QUOTE=Enumerate;345598]Any chance of a summary, Newman?

A large part of the article is about potential tax implications of interest capitalisation. basically it repeat what the letter (as a part of notice of accured interest, issued a few times in 2010) from Blue Star said regarding potential tax liability. Of course no answer was given.

The last paragrapg of the article mentioned other ideas, including forgiveness of interest, interest and share swap.

I guess the journalist got something from Blue Star (i.e. capitalisation) because it does make sense for him to write the article based on imaginations just weeks (may be days) before Blue Star announces the terms and conditions for bonds extension..

Royalwolff
23-05-2011, 09:45 PM
Remember, these guys know everything there is to know about this business. We know what we get fed, through annual reports. You do not put the money these guys are putting into the Web offset/heatset business thinking that the company might fail. However, this information asymmetry might tempt them to "stitch up" the bond holders - after all, the current market sees fear as the dominant emotion. Hence, I think it is imperative that the bond holders use the meeting to ask the questions that need to be asked and to reject the deal if there is a "whiff" of unfairness.

A little surfing on the web has help to served up a good fed of information on the state of the print industry and Blue Star. This is not an industry or a company I would be choosing to reinvest in at this point in time.

An article on financial restructuring within the print industry and the issues Blue Star and their PE competitor Geon are facing as highly geared aggregators in the print industry, it is also a cautionary note for anyone considering the pending Opus IPO.

http://www.proprint.com.au/InDepth/255291,is-financial-restructuring-all-it8217s-cracked-up-to-be.aspx

Blue Star is presenting the ACP win by Webstar NZ and the new Auckland factory as an example of business improvement but as I understand it Webstar also has the contract to print the phone books in NZ and this is one of their largest contracts. How long will they continue to be printed in the current volumes? Refer following link regarding phone book volumes in Melbourne being reduced by 90%?

http://www.i-grafix.com/index.php/news/australia/telstra-cuts-white-pages-order-by-90-per-cent.html

An article targeted towards the owners of SME sized print companies and the issues they are facing, it does not present a healthy view of the print industry on the whole.

http://www.print21online.com/news-archive/-ascent-partners-how-do-you-eat-an-elephant-/

Enumerate
24-05-2011, 07:39 AM
I am attracted to investment in Blue Star Group for the following reasons:

1) Counter cycle timing: The print industry is advertising driven, after a couple of deep recessions and a sputtering recovery - we are pretty much at the low point (heading up, I hope) - the demand side will recover to be matched to a reduced supply side.

2) Business transformation: The "craftsman" nature of print is transforming to "manufacturing". The business consolidation and restructuring will continue - sheet feed operators will be replaced by larger competitors using web offset/heatset. There will always be a niche for a craftsman printer - but the economies of scale and size will go to those with a manufacturing mindset.

3) Capital and scale: Printing is capital intensive - only those with scale and financial smarts will survive. Private equity can make the scale happen and certainly understand structured finance - private equity will be a significant force in the transformation of the industry.

As was pointed out a few posts back - the Proprint article is inaccurate. It is ridiculous to compare Blue Star Group and GEON (financially, capability wise) - the only thing they have in common is Kiwi origins (which the Aussies love to hate). Blue Star has not done financial restructuring involving bond holders - if facts of the article are questionable; the entire premise of the article is equally suspect. The Aussie author is pitching to his mates - small sheet feed operators who do not understand the business transformation underway, how to position their business and are dropping like flies in the current depressed climate.

In terms of the Telecom directory printing - NZ is a different situation. The CEO of Yellow is on record stating that the impact on printed directories is grossly over stated - he points to a number of innovations in NZ directories. The aussie situation is a different business model. I'd say the issue is not a clear cut.

The Print21 article points out basic business management issues in the small, "craftsman", sheet feed operations. Print has a number of business niches - while Blue Star does have some exposure to the small end of sheet feed, it is not the part of the business growing rapidly.

Bond holders will be presented with restructure terms. I think it is doubtful that these terms will involve cash payment of accrued interest or any return of the capital. Further, it is likely that the repayment date of September 2012 will be extended past the proposed maturity of the senior debt in February 2015.

Bondholders actually have a significant amount of power. They can refuse the restructure; reject the bank inspired terms and force the equity holders to find another plan (by September 2012).

I think a reasonable deal will be put to the bond holders. What I will be looking for is:

1) Enough new capital to add some security to the restructured bond capital (face + capitalised accrued interest)

2) Reset senior banking covenants that will allow interest obligations to the bond holders to be paid out

Concessions, to be offered:

1) Capitalisation or payment of accrued interest (forgiveness is not an option)

2) Extension of the maturity date

3) Reduction in the interest rate (more capital introduced -> greater equity protection -> lower interest rate)

I do not think that the bond Trustee will allow a stupid, derisory offer to be put. However, the offer will be subject to careful scrutiny and a lively bond holder meeting. Every vote will count at this meeting ...

Newman
24-05-2011, 01:57 PM
[QUOTE=Enumerate;346392]I am attracted to investment in Blue Star Group for the following reasons:

Enumerate, be careful of not putting all eggs on the Blue Star bucket.

The HY results (to 31 Dec 2010) show interest bearing CURRENT liabilities of $18.345m. A cash injection of $20 m from shareholders would barely pay the current debts by 31 December 2011.

Assuming that the full years (to June 30) EBITDAR is $50 m or more, and senior debts remain at $150 m, then the ratio would be 3.00 to allow payment of interest on bonds. But the challenge is: what about the accrued interest (ca $30 m by June 15)? Unless capitalied or forgiven, Blue Star could not afford resuming interest payment. But it would require good luck to get 75% bond holders' favourate votes. Why should bond holders do Blue Star a favour? Those who bought bonds at $1 have lost at 73 cents in dollar (today bonds were traded at 27 cents). They might vote against Blue Star just to give its shareholders a lesson.

If Blue Star is innovative enough by, for example, buying back even a small percentages of its bonds on the market the price would go up. At 50 cents bond holders might think that now the situation is better and we would vote for restructuring for a return of interest payment.

Given the huge amount of senior debts, few bond holders would expect Blue Star would be able to pay them back even if the bonds are extended to September 2015. Thus, BLU020 will remain a risk investment at least for another 4 years.

Last week Perpetual Trust sent a letter to Irongate Property bond holders. A paragraph in the letter states that restructuring bond terms is a very expensive process, thus not an option for Irongate Propertry. Probably it is the same for Blue Star.

Blue Star had sent letters to bond holders, advising the amount of accrued interest. But it stoped doing so when a letter was due on March 15. Any interpretation on this?

Enumerate
24-05-2011, 02:23 PM
I suppose I should clarify ... when I say I am "attracted to investment in Blue Star", it is because I can buy a $1 bond + accrued interest for the price of the accrued interest. Clearly, the market is pricing Blue Star at a receivership price rather than as a viable ongoing business.

I am worried by the delays in the process of proposing restructure terms:



Details of the revised package, including the proposed terms of the Capital Bonds refinancing will be announced to the market soon.

I thought "soon" meant a couple of weeks to a month ... apparently, it means "something greater than 2 months".

Blue Star are also being lumped in with GEON in terms of financial performance. It will be a great day for the business when the bonds are put back on some kind of commercial footing. This innuendo and rumour will be finally put to bed.

I have no idea why there is a delay. I expect the March update letter was skipped because they were expecting to make the restructuring announcement.

tim23
24-05-2011, 06:18 PM
I finally got a reply from CEO via Secretary with an apology but saying they could not comment!

Newman
24-05-2011, 07:37 PM
I finally got a reply from CEO via Secretary with an apology but saying they could not comment!

The fact that terms for bond restructuring have not been put forward for voting suggests that Perpetual Trust was not happy about what Blue Star proposed, sending Blue Star back to square one. I supposed the proposed terms were very unfriendly to bond holders. Otherwise the Trustees would not block it.

Contrarian
24-05-2011, 08:18 PM
Gidday
Meanwhile there is a buyer hoovering up offers. Can someone check & advise if this is the same buyer or even same brokerage firm?

I don't think they are hoovering enough to effect a vote, but wonder "Is BLU under the same restrictions regarding buybacks/disclosure as a fully registered main board entity"

It would be very advantageous for Champ or who ever they, are to buy out their mortgage for 28 cents in the dollar (less 28 cents penalty interest). why can't we all get deals like this?

Alan3285
24-05-2011, 08:48 PM
why can't we all get deals like this?

Rejoice, because you can!

Just buy some first thing tomorrow.

Alan.

Enumerate
25-05-2011, 07:19 AM
Christchurch sheetfeed update:

http://www.proprint.com.au/News/258420,blue-star-to-cut-staff-and-relocate-production-at-spectrum-due-to-christchurch-quake.aspx

Newman
25-05-2011, 12:52 PM
Perpetual Trustee Company Ltd is a large (22%) shareholder of Blue Star Group Holding. Who is this company? I think it is not the Perpetual Trust of PGC.

Private Equity CHAMP holds 47% of shares, Sturgess 16.7%, and Mitchell 3%. It seems that shareholders other than CHAMP are important as well in bond restructuring.

Contrarian
25-05-2011, 03:19 PM
Gidday
It is a trustee company (curtain for holder to hide behind) You are correct it is not the PGC crowd, it is wholly owned by www.perpetual.com.au

Re my post yesterday, I was saying it's good if you can buy back your own debt on the cheap, if you know you are not going bankrupt. But to buy someone elses debt in a information vacuum is another matter. ie might be good deal for bluestar big shareholders to buy, but not for me.

Enumerate
30-05-2011, 02:40 PM
Blue Star wins three-year government contract (http://www.i-grafix.com/index.php/news/new-zealand/blue-star-wins-three-year-government-contract.html)

$10.8m NZ government contract ...

http://www.i-grafix.com/index.php/news/new-zealand/blue-star-wins-three-year-government-contract.html

Newman
30-05-2011, 02:54 PM
Blue Star wins three-year government contract (http://www.i-grafix.com/index.php/news/new-zealand/blue-star-wins-three-year-government-contract.html)

$10.8m NZ government contract ...

http://www.i-grafix.com/index.php/news/new-zealand/blue-star-wins-three-year-government-contract.html

According to www.scoop.co.nz, this is more a renewal of previous contract rather than a complete new one:

"Blue Star had previously held a five-year contract to supply print management, information technologies and mailing services to the Ministry of Social Development (MSD). This new contract, which was awarded following a competitive tender process, came into effect in February, and has an option to renew for an additional two years, allows the government agencies access to a full online ordering, asset management and reporting tool."

Why Blue Star did not announce it when the this contract came into effect in February? Did Blue Star lose any contract?

It would be better to judge Blue Star by its actions than its words. Before it resumes paying interest on bonds, anything it says just remains cheap words, whci are abundant in its annual reports.

Newman
01-06-2011, 12:09 PM
Blue Star pushed Moore Australasia into receivership:

Blue Star grabbed Tabcorp contract from Moore (in January 2011), pushed the latter into receivership yesterday. The two links below suggest that Tabcorp contract is about $10 m in value (21% of $50m+).

http://www.print21online.com/news-archive/moore-goes-under-after-losing-aae-2m-contract/
http://www.print21online.com/news-archive/moore-misses-out-on-new-tabcorp-contract/

It seems that smaller printers are even harder to survive. In terms of bond restructuring, I guess the terms and conditions would remain unknown until at least the end of August when the full years accounts are announced. If the full years EBITDAR is more than $50m to allow future interest payment it would help Blue Star win the support of bond holders.

Enumerate
02-06-2011, 07:16 AM
If Blue Star Group have the approval of the senior lenders to put a proposal before the bond holders - I do not understand why they would not do this asap?!? After all, they are paying 13.1% interest at what formerly was a 9.1% yield.

Perhaps they underestimate the fight they would have on their hands if they propose forgiveness of the accrued interest? Forgiveness would only accrue benefit to the equity holders - I doubt that bondholders would be in a generous mood given the hardship caused by the suspension of the interest payments. The bondholders have earned their interest, fair and square. I hope that the Trustee understands (and defends) this right.

The choice of phrase, that a proposal would be taken to the bondholders "soon", is wearing a little thin after three months. I fully understand that bondholders are not equity holders - there is more of an arms length relationship, which would explain the lack of information flow. However, it is clear that if bondholders are asked to shoulder the burden of financial restructuring - there will be a serious fight on.

If, as you suggest, the proposal will not be announced before August - I would suggest that clarification of the "soon" announcement in March should be made.

Newman
02-06-2011, 08:32 AM
[QUOTE=Enumerate;347409]Perhaps they underestimate the fight they would have on their hands if they propose forgiveness of the accrued interest? Forgiveness would only accrue benefit to the equity holders - I doubt that bondholders would be in a generous mood given the hardship caused by the suspension of the interest payments. The bondholders have earned their interest, fair and square. I hope that the Trustee understands (and defends) this right.

Chris Lithgow, p 09 927 9408 Christopher.Lithgow@perpetual.co.nz, is the person on the Trustee side involved in bond restructuring discussion. His feedbacks several weeks ago suggest that what the Trustee can do is close to nothing. You might want to contact him for an update on progress if any.

winner69
04-06-2011, 04:03 PM
Chris Lee (god bless him) reckons there's 300 plus BSG executives who are paid paid more than $100,000 p.a.

Must be plenty of money to be made in printing business if so many can get paid so much .... but nobody ever seems to make much

tim23
04-06-2011, 04:49 PM
And the CEO can't even respond to an email - hes not worth 5c!

Enumerate
07-06-2011, 09:02 AM
Chris Lee (god bless him) reckons there's 300 plus BSG executives who are paid paid more than $100,000 p.a.

Blue Star Group is not a small business - it is a half a billion$ enterprise spanning Australia and New Zealand.

As usual, Chris Lee is approximate with the facts. It is Blue Star Group Holdings (which includes Blue Star Group Limited) with the staff. The ACP work came from APN and PMP. CHAMP is not American, it is Australian - affiliated with Castle Harlan in New York.

I am delighted at 300 managers in Blue Star Group Holdings Limited are paid more than $100k. I wish it were 500 managers (supported by the extra requisite revenue).

The most significant point is that Chris Lee now reckons that Blue Star could survive:


www.chrislee.co.nz][/url]
Blue Star Group, so heavily funded by little investors, is showing signs of survival.


Maybe, at about 28cents for $1.28 of debt, Blue Star subordinated bonds might even be a raging BUY!

Newman
07-06-2011, 10:22 AM
If you are a shareholder of Blue Star Group and thus has better knowledge on the company than bond holders what would you do? Buying back bonds at 28 cents? Injecting cash? Threaten bond holders (e.g., forget the accured interest, otherwise...)? Wait and see? Pray for good luck?

Blue Star has ca$150 m senior debt and ca$130 m bonds and unpaid interest. If it can make an after tax profit of $5 m/yr, it would take proximately half a century to pay off the debts. Am I wrong?

Enumerate
07-06-2011, 11:51 AM
In view of the likely CHAMP planned exit strategy ... generating large profits is likely to be viewed as highly inefficient, from a finance perspective. This business will always have structured debt ... it is the nature of private equity. If you could own half a billion$ in revenues with debt to EBITDAR ratio at 3.5 - this is conservative by private equity standards.

The question you should be asking is: "What level of free cashflow is being generated by the business?". In the Blue Star case this has been about $20m pa. With the recovery, this number will improve. Free cash flow translates to happy banker; happy bankers translates to finance terms, forever; finance terms, forever, with minimal equity is what private equity is on the hunt for.

tim23
07-06-2011, 05:40 PM
Thanks for your objective comment, I've found it really helpful.

Enumerate
15-06-2011, 12:56 PM
Blue Star boosts NZ web capacity by 30%

http://www.proprint.com.au/News/260544,blue-star-boosts-nz-web-capacity-by-30.aspx

Here is the story behind the story ... building of the WebStar plant in West Auckland:

http://www.proprint.com.au/Info/NotFound.aspx?aspxerrorpath=/InDepth/253170,risk-and-reward-of-a-blank-canvas-build.aspx

Another story about the opening of the new facility:

http://www.print21online.com/news-archive/webstar-opens-new-printing-facility-in-auckland/

Newman
16-06-2011, 01:09 PM
Blue Star boosts NZ web capacity by 30%

http://www.proprint.com.au/News/260544,blue-star-boosts-nz-web-capacity-by-30.aspx

Here is the story behind the story ... building of the WebStar plant in West Auckland:

http://www.proprint.com.au/Info/NotFound.aspx?aspxerrorpath=/InDepth/253170,risk-and-reward-of-a-blank-canvas-build.aspx

Another story about the opening of the new facility:

http://www.print21online.com/news-archive/webstar-opens-new-printing-facility-in-auckland/

According to the article (with link below), ACP's contract in NZ worths $16 m only. It is unknown whether Blue Star has maintained or increased its share of ACP contracts in Australia (38% of $80 m). If not, Blue Star would be in big trouble. The tender process for ACP contracts started in September 2010.

http://www.print21online.com/news-archive/acp-mega-magazine-ten-year-print-tender/

Newman
17-06-2011, 01:51 PM
Blue Star bonds were traded at 170%, or $0.24/bond, this afternoon.

Greenspan said Greece default was almost certain, which would help drive USA into recession.

It would be nice if Blue Star could confirm that its senior creditors has not changed mind of entending debt to 2015!

Enumerate
17-06-2011, 03:32 PM
I am reminded of the story attributed to Nathan Rothschild - his network of spys had early information on the outcome of the battle of Waterloo. Knowing that his market actions were scrutinised; he started selling on the news of Napoleons loss - this sparked a panic collapse of the markets in London. Rothschild was able to buy fully and cheaply and profited from the euphoria when the news was finally public.

Newman
20-06-2011, 03:16 PM
For those who believe Blue Star has a bright future, the words below from today's newsletter of Michael Warrington could be intrepreted as a positive sign:

----------------------------------------------------
Investment Opinion

ISDA - A very important decision was made two weeks ago by one of financial market’s many acronyms.

ISDA stands for the International Swap and Derivatives Association, an organisation which began in 1985, as derivative volumes began their two decade long explosion.

Many readers will now be familiar with the term ‘swap’ and may recognise ‘derivative’ which in financial markets parlance refers to investment products whose value is derived from the value of another product.

The decision made was that a failure to pay interest on time, and a request to lengthen the maturity of a debt, was considered to be a default. (Blue Star Group should be watching).
-----------------------------------------------

It would not be as easy as I expected that Blue Star could writeoff unpaid interest on bonds. Shareholders of Blue Star might have to inject more cash than they intended to make banks and bond holders happy for extension of debts. As this would not be an easy decision, bond holders might have to wait longer for an annoucement from Blue Star.

Newman
21-06-2011, 12:52 PM
CHAMP (Blue Star's owner) sold Healthcare for A$240 m. Click the link below for details:

http://www.theaustralian.com.au/business/industry-sectors/archer-capital-in-240m-deal-to-acquire-healthe-care-from-champ-ventures/story-e6frg97f-1226071632615


This news might be of interest to Blue Star bond holders.

Royalwolff
21-06-2011, 03:51 PM
I am reminded of the story attributed to Nathan Rothschild - his network of spys had early information on the outcome of the battle of Waterloo. Knowing that his market actions were scrutinised; he started selling on the news of Napoleons loss - this sparked a panic collapse of the markets in London. Rothschild was able to buy fully and cheaply and profited from the euphoria when the news was finally public.

I like the story but it supports my fear. If the management of Bue Star know they can turn the business around with significant forward sales as the recent news reports are wanting to imply and they thought there would be a good outcome for Bond holders would we not have see the bond prices starting to climb?

Enumerate
21-06-2011, 07:58 PM
New Inkjet digital press into the Web facility at Silverwater in Sydney. Clearly Blue Star is signalling a leadership role in deploying the new technology. More pressure put on sheet feed shops?

http://www.print21online.com/news-archive/full-colour-hp-t-300-lands-at-blue-star-sydney/

Enumerate
21-06-2011, 08:01 PM
CHAMP (Blue Star's owner) sold Healthcare for A$240 m.

Nice find, Newman. Very interesting.

Dubdee
27-06-2011, 11:46 AM
Given the yield that these are trading at what a great oppotrtuity for CHAMP to buy them back on market.

CHAMP of course has heaps of money it just doesnt want to invest it in Blue Star. PE is of course is all about owning a series of businesses, bought cheaply and to avoiding puting any of your own $ in.

Champ of course have all the inside information about Blue Star performance but the fact that they are expending CAPEX suggests to me that death is not nigh. I would be very unsurpisded if they were not accumulating stock at such a severe discount, particularily if you knew intimately the operating metrics of blue Star.

Be interesting to know if they could vote their stock at any comming meeting to alter the terms. If I was CHAMP I would be buying this stuff with my ears back as long as I was confident the company was not going to hit the wall.

Newman
28-06-2011, 08:31 AM
Given the yield that these are trading at what a great oppotrtuity for CHAMP to buy them back on market.

CHAMP of course has heaps of money it just doesnt want to invest it in Blue Star. PE is of course is all about owning a series of businesses, bought cheaply and to avoiding puting any of your own $ in.

Champ of course have all the inside information about Blue Star performance but the fact that they are expending CAPEX suggests to me that death is not nigh. I would be very unsurpisded if they were not accumulating stock at such a severe discount, particularily if you knew intimately the operating metrics of blue Star.

Be interesting to know if they could vote their stock at any comming meeting to alter the terms. If I was CHAMP I would be buying this stuff with my ears back as long as I was confident the company was not going to hit the wall.

I think if CHAMP buys back BLU020 bonds it has to make an announce to the market. Practically CHAMP would not be able to buy back a large amount of the bonds cheapily. This is because as soon as it does so the market will react quickly. Last month it was Clearfield Consulting and Forsyth Barr Custodians accumulating the bonds.

It is of interesting that Blue Star no longer send bond holders a letter, stating the amount of unpaid interest. Any interpretation of this?

I would not be surprised if Blue Star has changed mind regarding the restructuring of bonds. This seems more difficult than many thought. Blue Star might be able to renew its senior credit without touching the bonds until September 2012.

Enumerate
28-06-2011, 01:52 PM
I would not be surprised if Blue Star has changed mind regarding the restructuring of bonds. This seems more difficult than many thought. Blue Star might be able to renew its senior credit without touching the bonds until September 2012.

I doubt they will be in a position to actually pay the interest - mainly because their bankers will want to see the cash left in the business. They have just completed a major series of capex expenditures - they do not have the free cash.

Your prior point - about interest forgiveness and extension being interpreted as a default of the bonds - probably means they have to tread carefully. Capitalisation and extension is still my pick. The bondholders will be left to sort out their own tax liability :(

I believe that, overall, things are looking up. It would be nice to get some confirmation of this from the company. Hopefully we don't have to wait until September for the year to June results.

Dubdee
29-06-2011, 11:58 AM
Capitalisation will trigger a RWT event for holders.

BS will be forced to pay RWt on behalf of all holders at that time. The law says RWT is due at the time of payment or crediting to an account (ie capitlaisation increasing the amount owing.)

Enumerate
14-07-2011, 09:33 AM
Major Announcement

Refinancing terms are up on the NZX web site:

http://file.nzx.com/000/935/5282935.pdf

Enumerate
14-07-2011, 09:37 AM
Key features are:

1) Forgiveness of the accrued interest

2) 2/3rds of the bonds will be replaced with interest bearing ammended capital bonds

3) 1/3rd of the bonds will be replaced with interest free bonds "tied to the equity value"

Interest will be payable on the ammended bonds from July 2013 - payable in October 2013!

Enumerate
14-07-2011, 10:54 AM
The moratorium terms were organised by Goldman Sachs and First NZ Capital ... it is Viking/Skellerup all over again ...

These guys must be the "go to guys" if you want to screw your retail bondholders.

I note that part of the gloomy prognosis is the fact that WebStar revenues were down 17% in the latest quarter. This, I imagine, is almost completely due to the fact that they lost APN as an overflow work supplier and had to ship in product for the APC contract from Silverstream in NSW. With West Auckland fully online ... this will be "healed" in the next quarter ... along with asset and goodwill provisions for valuing the new Manroland presses. Just perfect timing to panic the bondholders into crystallising inferior terms to the existing bondholder trust deed.

The deal offers massive benefit to CHAMP and the owners of the shareholder advances. These guys currently rank behind the bondholders - under the terms of the restructure, they will rank ahead. There are, of course, no concessions on interest from CHAMP ... why not? Why is this point not disclosed? More Goldmine Stacks dirty deals done dirt cheap.

I think the way forward is to prove that 25% of the register is against the deal, in advance of the meeting. As I remember, from Viking/Skellerup, it took 3 goes to get a halfway acceptable deal out of Goldmine Stacks.

Newman
14-07-2011, 11:25 AM
The moratorium terms were organised by Goldman Sachs and First NZ Capital ... it is Viking/Skellerup all over again ...

These guys must be the "go to guys" if you want to screw your retail bondholders.

I note that part of the gloomy prognosis is the fact that WebStar revenues were down 17% in the latest quarter. This, I imagine, is almost completely due to the fact that they lost APN as an overflow work supplier and had to ship in product for the APC contract from Silverstream in NSW. With West Auckland fully online ... this will be "healed" in the next quarter ... along with asset and goodwill provisions for valuing the new Manroland presses. Just perfect timing to panic the bondholders into crystallising inferior terms to the existing bondholder trust deed.

The deal offers massive benefit to CHAMP and the owners of the shareholder advances. These guys currently rank behind the bondholders - under the terms of the restructure, they will rank ahead. There are, of course, no concessions on interest from CHAMP ... why not? Why is this point not disclosed? More Goldmine Stacks dirty deals done dirt cheap.

I think the way forward is to prove that 25% of the register is against the deal, in advance of the meeting. As I remember, from Viking/Skellerup, it took 3 goes to get a halfway acceptable deal out of Goldmine Stacks.

Enumerate: Today would be a sad day if you followed your own optimistic view on Blue Star and retained or borrowed BLU020 this year.

I think the only part of the Prospectus released today is KPMG's summary. The rest is worse than words form a robber.

Certainly I will vote against the restructuring. In doing so, I prepare to loss any value of my bonds. In return, I will help make CHAMP lose it equity and Mr Chris Mitchell lose his job. Expecting a recovery of value from the bonds is close to a day-dream. CHAMP is to collect 18% interest on its funding to Bluse Star from day 1 while bond holders have to wait 4 years (from June 2009) for an interest on bonds!

If bond holders vote yes, they open the door for another abuse before 2015. In my view, the only way to force CHAMP to do a little bit better is to vote NO. Perpetual trust is useless in pretecting bond holders. Anyway it is paid by Blue Star, not bond holders.

Enumerate
14-07-2011, 11:33 AM
I have requested a full copy of the KPMG report ...

You can phone 0800 032 518 and request yours ... when they finally fix their AVR system (it was broken, just loops the announce message - must be operated by Goldmine Stacks).

Enumerate
14-07-2011, 11:44 AM
The essence of the moratorium is to: have bondholders "grasp defeat from the jaws of victory".

They are offering future prospects to preserve the original equity of the BLU020 on terms and security that are worse than the existing terms. KPMG paint a picture that the alternative to the bondholders "paying the piper" is immediate administration. The choice offered is "zero return, now" vs "a possible return, in the future".

I think it is important to understand the assumptions KPMG have made, before this stark assessment is accepted. I can think of some other viable approaches to restructuring that do not appear to have been considered. I wonder why there has been no independent review of the assessed position nor of the proposed offer?

Alan3285
14-07-2011, 11:46 AM
I agree, I will most certainly be voting against (not that I have much in this, but its the principle).

This is just an opening offer. Bondholders have to 'negotiate', and after a few rounds, a reasonable compromise may be found.

Alan.

Enumerate
14-07-2011, 02:47 PM
Just got a copy of the KPMG report - which is also reproduced inside the Prospectus.

The market will be reacting very badly to this restructure. It is quite apparent that the bondholders are being subjected to a public "rogering". However, it is worth noting some blessings:

1) The market has been pricing the BLU020 as if administration was the next development. Clearly, the banks and shareholders view the company as worth saving.

2) The proposed deal marks 65% of the face value as "likely to be returned" - with an income stream from July 2013 until maturity.

3) 35% of the capital is subject to the CHAMP exit at either a high EBITDA or subsequent to an EBITDA recovery.

4) Both the banks and the shareholders are contributing capital (which they will get back); the bondholders are forgiving interest (which they won't see, in administration).

The market is going to hate this announcement. However, in terms of capital preservation, the prospects for at least a 65% return are good (though you have to wait for it). The market is marking the value at 25cents per $1 face. If the recovery continues, in two years time, the senior bankers will be happy (given the likely accelerated rate of principle payment afforded by nil bond interest payments; CHAMP will have some good prospects of an exit (based on a recovering EBITDA and revival of the private equity market).

As far as "ugly banker haircuts" are concerned - this one is pretty bad. However, it could have been worse - we could all be facing an "ugly banker haircut" of Terry Seripisos proportions.

marcus_milo
14-07-2011, 07:38 PM
I hold almost 200000 bonds and am leaning towards voting against the proposal. The problem I have, is that I feel they are asking for too many concessions from the bond holders. On principle I don´t like having to forgo the unpaid interest to date. I thought the least they could do is capitalise that, even if it was added to the non-interest paying bonds. I also don´t like the fact that I now have to wait another two years before receiving any interest. I would accept a lower rate of interest, but payable now.

I feel the current proposal is "trying it on" a little, and more could have been done to make the proposal more attractive to the bond holders.

My 5 cents worth.

Enumerate
14-07-2011, 10:10 PM
The problem is that we have had CHAMP private equity, as a shareholder, negotiating hard against the banks. Neither wants to put more money in and both want to improve the security of their investment.

Who was negotiating, hard, for the bondholders? ... anyone?!?

About the only thing these parties could agree on is likely to be the rich and full, manner and means for putting it to the bondholders :(

Goldman Sachs wants to present the alternatives in sharp relief ... have a chance at capital preservation or face a nil return in administration. I am suspicious about the timing - the last quarter is about as bad as it gets due to the costs of establishing the new West Auckland plant to support the ACP contracts. All the costs are in this quarter ... all the revenue benefits are ahead of us.

I will be voting "No" to the proposal. I think there are better chances of capital preservation in administration.

Enumerate
14-07-2011, 10:27 PM
Interesting article:

http://www.print21online.com/news-archive/blue-star-extra-25m-depends-on-bondholder-august-vote/

$30m of new capital



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.

The following quote is interesting:



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.

Clearly the banks are playing "hardball". Sacrificing $32.3m of interest, so the banks can lend $15m more, with security. The shareholders "price" is to introduce $15m, earning 18% and superior to the subordinate bonds?!?

I think it is time to dish up the possibility of $150m of impaired senior loans and an administration process dominated by a collection of angry bondholders. Lets see how the bankers like that!

Newman
15-07-2011, 09:03 AM
The HY accounts to Dec 31, 2010 show that:

1) Blue Star has an equity of $119m, of which goodwill is $139m. Can banks really get their money back if Blue Star goes to receivership? Do you believe there is a buyer to pay banks $150m+ cash and take over 1800 staff?

2) Contributed equity is $30.67. This is less than the accumulated interest of $32m that bond holders have to give up. The equity is also less than the $37.5m of bond holders' money that would become participating bonds (without interest). However, the shareholders want 80% of any proceeds from exiting Blue Star.

My further observation: NZ Herald and National Business Review seem not interested in reporting Blue Star's bond amendment offer. Business commentors probably regard the offer as childish, thus not worth mentioning. No one has thought of $32m interest writeoff and further give away of $37.5m.

The letter from Perpetual Trust suggests that amendment is not necessary, thus bond holders should vote against it. I believe it will be banks and CHAMP who are more fearful than bond holders of a receivership.

My suggestion: to be fair, bond holders should be offered the same opportunity as CHAMP got to lend money to Blue Star and receive 18.5% interest. The accumulated interest should be converted into shares. Everyone's money should be treated equally.

Final remind: I do not know any company that arranged debt restructuring with bond/note holders in the last 3-4 years produced the promised outcome.

Newman
15-07-2011, 06:35 PM
I learnt from an expert on printing sector the followings:

Blue Star is being creative with the information and timing of media releases. ...If CHAMP supported project Agile and the long term future of Blue Star they would be investing in it, if the management believed in Agile they would have been buying up bonds at the hugely discounted rate over the last year.

BNZ/NAB is safe (to extend senior debts), this refinancing deal is all about protecting CHAMP’s investment long enough for them to minimise their hit.

Bonds holders have a window of opportunity to negotiate hard with CHAMP, a short term goal of getting as much out as fast as possible is the only weapon bond holders have over CHAMP. ... Recent history tells us there is no happy ending for minority investors.

A case study on Private Equity investment in print companies : Polestar, a UK print company with a disturbingly similar name and journey to Blue Star.
http://www.printweek.com/bulletin/printweekdailybulletin/article/1079750/polestar-publishes-details-sun-acquisition/

Enumerate: you might want to comment further after reading the article mentioned above.

Enumerate
15-07-2011, 07:27 PM
Remarkable analogies ... even down to the name and the Goldman Sachs involvement.

JBZ
16-07-2011, 03:24 PM
I do think that bluestar and the invermentcomp are trying very hard to get away with this.
As a bondholder I am willing to fight for my money, the company has clearly mismanaged the whole business structure and destroyed the weath of all the bondholders with their actions over the past ferw years instead of protecting the value. Management should be held accountable.

Balance
17-07-2011, 12:21 PM
http://www.stuff.co.nz/business/industries/5296472/Investors-risk-scalping-in-Blue-Star-deal

Investors risk scalping in Blue Star deal
ROB STOCK Last updated 05:00 17/07/2011

The haircut mum and dad Blue Star bondholders are being offered could turn into a full scalping.

Further restructurings of the company are possible given the high risk of the debt-laden print group failing to meet its forecasts, KPMG's independent report tells investors.

Bondholders, who have $105 million of bonds at face value, are being asked to forgive $32.3m in unpaid interest accrued since payments were suspended two years ago, and to swap their $1 bonds for 64 cent bonds, to be repaid later, and "participating" bonds designed to give them a share in equity gains the company plans to make.

But the deal investors are being offered – without which KPMG sees a zero capital return as a possibility – is far worse than that being offered to private equity investor Champ.

Champ has pledged to inject $15m, but interest will accrue at $18.5% on that loan, more than double the 9.1% bondholders are being offered. Champ's loan is repayable earlier and ranks more highly in the event of a liquidation.

"This enhancement of priority for existing shareholder loans is unfair to bondholders, to the extent that there is any value attributed to the existing shareholder loans, and the enhanced priority for shareholder equity is unfair to the extent there is any value attributed to the participating bonds," KPMG's report says.

The report leaves mum and dads in no doubt about where they fit in the pecking order.

"The concessions that are being requested of the bondholders are greater than those requested of the other security holders and therefore what is offered to the other security holders is fairer than that being offered to the bondholders."

KPMG warns further restructuring may be needed. Blue Star Group needs to be able to lift its earnings before interest, tax, depreciation and amortisation from $45m in the 2010 tax year to $63m, and to sell it for a far higher multiple of EBITDA than it could today.

To repay the amended bonds would require the business to sell in 2015 for $279m, says KPMG, but to also repay the participating bonds would require a price of $504m, meaning the market would have to rethink its view of the print industry and need eight times EBITDA.

"If the forecast improvement in financial performance does not occur, there is a significant risk the group may experience liquidity difficulties. There is the possibility that further refinancing or corporate action prior to maturity in 2015 may still occur."

Managing director Chris Mitchell apologised to bondholders for how little information they had during closed-door consultations between the company, the bank and Champ. "We wanted to wait until we had the full story rather than going out half-cocked. I apologise for that."

Ad Feedback

No changes are needed to the board, he says, blaming instead the financial crisis and decline in the print market.

"We have worked pretty hard on a strategy," he says. "We just need more time."

rob.stock@star-times.co.nz

- Sunday

Newman
17-07-2011, 02:07 PM
[QUOTE=Balance;351511]http://www.stuff.co.nz/business/industries/5296472/Investors-risk-scalping-in-Blue-Star-deal

Investors risk scalping in Blue Star deal
ROB STOCK Last updated 05:00 17/07/2011

The haircut mum and dad Blue Star bondholders are being offered could turn into a full scalping.

....

No changes are needed to the board, he says, blaming instead the financial crisis and decline in the print market.

"We have worked pretty hard on a strategy," he says. "We just need more time."

-------------
"We have worked pretty hard on a strategy," he says. "We just need more time."

Chris is right in terms of having worked hard, but for whom? Obviously not for bond holders!

He is also right in that "We just need more time" so that CHAMP can exit Blue Star with some cash, leaving nothing to bond holders!

He is wrong saying that "No changes are needed to the board". Indeed, the first thing needed is to change the board and restructure the business. Get rid of the money-losing part of Blue Star! Do not blame global financial crisis any more!