Bluestar Group (BLU020)

[Balance]

Words from Chris Lee re the decision: "Blue Star Group’s failings have conditioned investors to be extremely cynical about the integrity of published accounts, and cynical about corporate behaviour."

He is obviously writing about :

1. His finance companies ratings system.
2. The $350m odd that his clients invested in the finance companies, based upon his recommendations and ratings system.
3. His attempts to distant himself and his firm when most of the finance companies collapsed - it's not his faults but that of the finance companies #1, and the investors themselves #2.

To those of you who quoted Chris lee/Warrington in this thread, you now know the sort of characters that they really are.

BTW - the 219 'No' votes versus 4 'yes' votes show how irrelevant the rantings and ravings by those who professed to have high principles are?

[Enumerate]

My experience, with finance company moratoriums, was a period of hope followed by a sudden belly-up a year down the track.

The critical point here is that the finance company moratoriums occured AFTER the companies concerned went into receivership.

There is a vast difference with the Blue Star restructure - the company is trading, generating cash (and would be profitable, apart from goodwill writedowns). This is also a restructure that maintains the support of the most significant equity holder - CHAMP. It is still their business, with growth prospects and staff with energy/enthusiasm. This deal is about bully banks withholding loan liquidity to force improved security - Blue Star is a profitable, energetic company; not a pile of toxic property development loans.

Bondholders have actually conceded nothing of particular value - the historical and future interest concessions are bust - there is no rational possibility of making a recovery.

On the other hand - by supporting CHAMP - bondholders support the only entity capable of supporting continued Blue Star growth and development. (Supporting the banks would only lead to a programme of asset realisation - to the disadvantage of the bondholders).

(This is why I think the negotiation strategy of brinkmanship - rejecting the restructure in the hope of a better deal - fails. The banks have already done their asset recovery calculations, they had the ability to put infinite pressure on the equityholders; bondholders supporting the bank position was plainly stupid, bondholders supporting the only people willing to introduce new equity is the only logical negotiation strategy).

[Xerof]

On the other hand - by supporting CHAMP - bondholders support the only entity capable of supporting continued Blue Star growth and development. (Supporting the banks would only lead to a programme of asset realisation - to the disadvantage of the bondholders).

(This is why I think the negotiation strategy of brinkmanship - rejecting the restructure in the hope of a better deal - fails. The banks have already done their asset recovery calculations, they had the ability to put infinite pressure on the equityholders; bondholders supporting the bank position was plainly stupid, bondholders supporting the only people willing to introduce new equity is the only logical negotiation strategy).

Agree 100% - Enumerate, I'd give you a thumbs up if the facility existed....... oh I found one

[Enumerate]

Agree 100% - Enumerate, I'd give you a thumbs up if the facility existed....... oh I found one

OMG - I don't know how I will cope with someone actually agreeing with me. Usually, if 219 are against; 4 are in support - I am one of the 4.

[Germaine]

You'll probably cope by wasting even more cyberspace lecturing us all on how much you know about various key principles of economics. Or maybe you'll spend the time sitting out by your mailbox waiting for your cheque from Blue Star? (take some warm clothes, you may be there for a while...)

And if you think that a moratorium can occur AFTER a receivership, that probably says it all.

Finally, I will take this opportunity to quote a great figure in the history of economics:

“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”. Post by Enumerate, referring to the Blue Star bonds, 08-03-2010

[Newman]

No matter how bright the future of Blue Star might be, the buyer of the amended bonds offers only 5 cents whereas the sellers want to get 29 cents.

[trevorbee]

The critical point here is that the finance company moratoriums occured AFTER the companies concerned went into receivership.

This statement is not correct. The moratoriums came first and were agreed to by the investors. Down the track, the finance companies failed to meet the scheduled payments under the terms of the moratoriums and were therefore put into receivership by the trustees.

Pretty much agree with the rest of your post though.

[Enumerate]

And if you think that a moratorium can occur AFTER a receivership, that probably says it all.

Yes, you are correct ... I was following Trevorbee's point and assumed he was talking about Hanover, which froze loan repayments and entered into some kind of administration in which a loan restructuring deal was hammered out.

So my point should be more accurately stated as:

"The critical point here is that the finance company debt restructures occured AFTER the companies concerned were in a state of technical default".

... or something like that.

[trevorbee]

I had decided to call it a day and not post again on this subject. However, there is still something ratting around in my head.

It is those comforting words spoken by Roger France towards the end of the meeting. If I remember rightly it was something like “these bonds are not like debentures, they are unsecured, subordinated instruments which carry risk and, in a situation like this, they are last cab off the rank”.

I know that, at the time, it felt like he was saying “and more fool you for investing in them”. If that is indeed what he meant then I think he was right.

I have now vowed to myself that I will never ever again invest in anything that is not at least as secure as a bank term deposit, no matter how well the issuer appears to be doing. Just been caught too many times. OK, the interest will be a bit less but, short of a major economic catastrophe, I will be able to rest easy that the interest will be paid on time and the principle returned to me in full at maturity.

I have seen other posts where people are taking a similar stance. So, could it be that commerce will find it much harder to raise money from the public in future? If so, great news for the banks and bad news for the financial advisers. Who needs advice to invest in a bank?

[Enumerate]

I have now vowed to myself that I will never ever again invest in anything that is not at least as secure as a bank term deposit, no matter how well the issuer appears to be doing.

I think you should examine this conclusion.

Every investment carries risk. The compensation for this risk is some kind of reward. Most people tend to be highly risk adverse, especially after period of extended recession - this leads to very high rewards for even moderate or even low risk.

Consider Quayside Holdings Perpetuals - QHLHA. This is a Tauranga Council CCO type organisation holding shares in PoT, whose dividend stream covers the interest payment. If you inspect the trust deed, there even appears to be a Council guarantee on the capital value of the units. Of course, normal commercial risk applies to the interest payments. These have traded as low as 85cents on the dollar (at this price, a 6.5% yield with high capital security; with the prospect of an interest rate reset to much higher levels at the next reset date).

On the other hand consider the recent collapse of the FDY010. These are capital guaranteed bonds, a kind of structured investment in international bonds/treasuries, has a 100% capital guarantee from Westpac and has recently traded at an effective return of 20% (all money payable at maturity, July 2013).

The market throws up some very interesting opportunities, even when capital preservation and modest income are your investment imperatives.

Of course, you always must do you own detailed research or contract for capable advice from a registered advisor.