Blue Star's 1Q trading worse than expected

Blue Star Group's September quarter trading has been worse than expected but it's too early to predict whether it will meet its prospectus forecasts, says chief financial officer Graeme Archer in a letter to bondholders.

Thursday, 1 December 2011

by Jenny Ruth

"Conditions in the print industry remain very challenging. It is clear that year-on-year spend across a broad range of customers has reduced, at least in part due to continued depressed economic conditions, particularly in Australia," Archer says.

The company should start to see the benefit of cost cutting measures over the coming quarters and the impact of adverse trading conditions has been partly offset by lower than projected senior debt levels, he says.

Blue Star continues to comply with its banking covenants and the company's forecasts were about 15% higher than the financial performance required to comply with those covenants, Archer says.

Blue Star is forecasting a $75.6 million net profit for the year ending June 2012 compared with the $84.9 million net loss it reported for the year ended June this year.

In August, bondholders agreed to swap the $137.3 million in principal and interest they were owed for a deal with a net present value of $44 million, if all goes as planned, to ensure Blue Star's continued existence.

One of the concessions major shareholders Tom Sturgess and Australian private equity firm CHAMP (CHAMP owns 93.7% of Blue Star) made to induce bondholders to approve the deal was a promise to convert about $12.7 million in debt and interest into equity, going from that amount ranking ahead of bondholders to behind them.

Archer says CHAMP is in the process of converting the debt to equity.

As well, bondholders were offered the option of investing in A$11.7 million (NZ$15.4 million) of shareholder notes which also rank ahead of the bonds but behind Blue Star's banks.

The notes will accrue interest at 18.5% a year with payment in one lump sum due on maturity, February 2015 when the bank loans, $140.5 million at June 30, are due to be repaid.

Archer says after Blue Star called for preliminary expressions of interest, bondholders were prepared to invest only A$384,653 in the notes and it was therefore uneconomic to proceed with the offer.

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