Bluestar Group (BLU020)

**Beagle** · 09-09-2010, 04:12 PM

Originally Posted by Newman

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, 07:08 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, 09:01 PM

Originally Posted by sleepdog

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, 09:48 PM

Originally Posted by Roger

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, 09:59 AM

Originally Posted by Alan3285

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, 10:14 AM

Originally Posted by Newman

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, 12:13 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.

**Beagle** · 10-09-2010, 04:33 PM

Originally Posted by Alan3285

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, 04:40 PM

Originally Posted by Newman

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.