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View Poll Results: Will you accept the terms of the current BLU020 restructure?

Voters
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  • No, the terms are unfair and I will reject them at the meeting

    219 98.21%
  • While I have reservations about terms, I see there is no choice but to accept them.

    4 1.79%
  • I find the terms fair and reasonable, I will accept them.

    0 0%
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  1. #11
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    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?

  2. #12
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    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.
    Do not consider my postings as investment advice. I am here to share research and to speculate on what might be. The boundary between fact and conjecture might not always be clear - best to treat all comments as speculation.

  3. #13
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    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.

  4. #14
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    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.
    Do not consider my postings as investment advice. I am here to share research and to speculate on what might be. The boundary between fact and conjecture might not always be clear - best to treat all comments as speculation.

  5. #15
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    Hi Enumerate,

    Just to clarify:

    Quote Originally Posted by Enumerate View Post
    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.

  6. #16
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    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).
    Do not consider my postings as investment advice. I am here to share research and to speculate on what might be. The boundary between fact and conjecture might not always be clear - best to treat all comments as speculation.

  7. #17
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    Quote Originally Posted by Enumerate View Post
    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).

    Quote Originally Posted by Enumerate View Post
    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.

  8. #18
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    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.
    Last edited by Enumerate; 17-04-2010 at 05:55 AM.
    Do not consider my postings as investment advice. I am here to share research and to speculate on what might be. The boundary between fact and conjecture might not always be clear - best to treat all comments as speculation.

  9. #19
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    Quote Originally Posted by Enumerate View Post
    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.

  10. #20
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    Quote Originally Posted by Alan3285 View Post
    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.
    Do not consider my postings as investment advice. I am here to share research and to speculate on what might be. The boundary between fact and conjecture might not always be clear - best to treat all comments as speculation.

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