By Lynda Kiernan
Australia’s Blue Sky Alternative Investments (Blue Sky) has been suspended from trading on the Australian stock market and has fallen into receivership after breaching a covenant connected to a $50 million loan facility from Oaktree Capital Management.
At the end of September 2018, U.S.-based alternative asset manager and distressed debt investor Oaktree agreed to a $50 million loan to Blue Sky in exchange for a 30 percent stake in the group. This was followed one month later by an announcement that Blue Sky Alternative Investments would split with its $177 million Blue Sky Alternative Access Fund (BAF).
It was believed that the split with BAF would streamline Blue Sky’s structure prior to a vote that will pave the way for Oaktree to one day convert its loan into equity, reported AFR, and the funds from the loan were to be used for co-investments and to provide Blue Sky with general working capital.
Under the terms of the facility, Blue Sky was required to maintain a minimum cash balance, minimum cash recurring EBITDA, minimum net tangible assets, and a minimum annual capex. However, in February the firm posted half-year results showing a $26 million loss, and as of March 31 was in talks with Oaktree about restructuring or adjusting the covenant.
Respectively, Oaktree Capital has enforced its rights, and has appointed KordaMentha as receivers and managers of Blue Sky, while Pilot Partners has been appointed as voluntary administrators.
This appointment is necessary if Blue Sky is to maintain its investment teams, key clients and stabilise operations and capital structure of the business,” said KordaMentha in a BLA ASX release.
As receivership proceedings progress, Mark Korda with KordaMentha noted in a statement that day-to-day operations will continue.
“The appointment will not affect the day-to-day operating activities of Blue Sky and its investment management business subsidiaries. Existing management and key contacts for relevant stakeholders, employees and unitholders will continue to be in place as per normal.”
Despite this reassurance, sources have told the Sydney Morning Herald that Oaktree has called in payment to the $100 million it sees itself due under the terms of the lending agreement between the two firms.
This development is the most recent blow to Blue Sky, which has been the center of a long period of uncertainty and strife.
The separation of Blue Sky from BAF followed upon a horrible year for Blue Sky, which saw its share price fall by 90 percent after Glaucus, a U.S.-based short seller, accused the manager of exaggerating the value of its assets under management at $4 billion, and over-charging its investors.
“There are a large number of factual inaccuracies throughout, including the assertions raised in relation to how Blue Sky calculates and reports its fee-earning assets under management, its investment performance and its fees,” Blue Sky said in a statement at the time.
Eventually Blue Sky conceded, adjusting the value of its fee-earning assets under management from $4.25-$4.75 billion to $4-$4.25 billion, and its net profit after tax guidance from $34-$36 million to $20-$25 million. This retrenching also resulted in managing director Robert Shand, Chairman John Kain, and CFO Michael Whyte leaving the company.
Glaucus has come out stating that Blue Sky falling into receivership is not a surprising development.
“Any time you have instances of financial alchemy … it creates a material risk of a receivership or administration,” Soren Aandahl, Glaucus Research told AFR. “We’re not surprised, is the way to describe it.”
~ Lynda Kiernan