Blue Sky Alternative Investments Limited (ASX: BLA), a diversified fund manager of alternative investments on 9 May 2019, released a market update. Based on the previous announcements of the company on 28 February 2019, and 1 April 2019 regarding the covenants under the convertible note facility with Oaktree Capital Management, L.P. (‘Oaktree’), the company was within all relevant lending covenant tests under the Oaktree facility at 31 December 2018. However, the board expected that as a result of restructuring measures continuing through FY2019, the covenants may not be met on 31 March 2019.
Earlier, on 28 September last year, Blue Sky entered into a binding subscription agreement with funds managed by Special Situations Group of Oaktree Capital Management L.P., regarding long-term capital investment in Blue Sky by Oaktree. In the agreement, Oaktree agreed to provide a $50 million, 7 years secured loan note facility to Blue Sky. These funds were supposed to be used for co-investments, as well as general working capital requirements. Based on Blue Sky’s shareholders’ approval, Oaktree will also hold the right to convert the amount, which the company owes in the company’s equity, capped at 30% of the resulting fully diluted share capital on the issue at the time.
As per the Oaktree facility, financial covenants such as minimum cash balance; minimum recurring cash EBITDA; minimum net tangible assets; and minimum annual capex are tested on a quarterly basis.
In its market update, on 9 May 2019, BLA mentioned that for the month of March 2019, the company has completed its management account, obtained advice on the application/interpretation of the agreement, as well as engaged external advisers to review the calculations of the company for testing compliance with the financial covenants. Based on the review, it was found that as at 31 March 2019 calculation date, the Company was in breach of the minimum recurring cash EBITDA covenant.
After the company announced to the market, that covenants might not be met as per the 31 March 2019 calculation date, the company is under ongoing discussions with the Oaktree, regarding the restructuring of the covenants to better reflect the current position of the company, which was necessary irrespective of any breach. These discussions have been constructive to date and remain in progress. Also, the company has not reached an agreement with Oaktree, regarding the variation or restructuring at this point of time, and Oaktree has not waived the financial covenant breach.
The company was in a transitional state when the covenants were agreed. In order to strengthen the capital and liquidity position, the company executed the facility with Oaktree to facilitate the execution of a revised business strategy.
As on 31 March 2019, the balance sheet of the company reported cash of $46.9 million and approximately $2.8 billion Fee Earning Assets Under Management.
At present, the shares of the company are trading at A$0.195, down by 7.143% (as on 9 May 2019, 2:35 PM AEST). Blue Sky Alternative holds a market capitalization of A$16.32 million with approximately 77.71 million outstanding shares.
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