Oaktree saves Blue Sky with $50m investment

Oaktree saves Blue Sky with $50m investment

Earlier this morning, embattled financial group Blue Sky Alternative Investments (ASX: BLA) entered into a trading halt pending an announcement about an agreement with global capital managers Oaktree.

This afternoon, the listed investments group announced it has executed a binding agreement with Oaktree to be the recipient of a seven-year loan facility worth $50 million.

The company says funds from the loan will be used for co-investments and general working capital requirements.

Blue Sky has been under siege during 2018 following a bout of bad news stemming from a short-selling report by Glaucus detailing a number of alleged holes in the business of Blue Sky.

The investment is potentially a saving grace for Blue Sky, as Oaktree intends to not only invest in the investment group but to give it some expertise and help with asset management.

Oaktree is a global investment manager specialising, like Blue Sky, in alternative investments. The company has USD$122 billion in assets under management and over 900 employees in 18 cities worldwide.

Blue Sky chairman John Kain says the investment will strengthen the business.

"We are pleased to announce this investment by Oaktree," says Kain.

"The funds available under the Facility will strengthen our capital and liquidity position. In addition, Oaktree's involvement with our business will enable Blue Sky to tap into the deep expertise and networks of a global leader in alternative asset management."

"We believe that, taken together, these factors will assist Blue Sky to restore its growth path and our ability to pivot to institutional grade investment mandates across the breadth of our business."

As part of the investment, Oaktree will be given the right to nominate up to two non-executive directors. 

Details of the loan facility

Oaktree has agreed to invest the $50 million in Blue Sky via a seven-year senior secured loan note facility.

Under the agreement, Oaktree has rights to convert the amounts owing to it into ordinary shares in Blue Sky, subject to shareholder and regulatory approval.

The conversion will be at a price of $1.87, which represents an 18 per cent premium to the last closing price of Blue Sky shares on the ASX.

Blue Sky says that approval of these conversion rights will be sought from investors at the upcoming AGM on 19 November, subject to regulatory timetables.

Grant Thornton has been appointed to provide an independent report on whether the potential acquisition by Oaktree of more than 20 per cent of Blue Sky Shares is fair and reasonable to Blue Sky shareholders.

Blue Sky's brush with ASIC

After a rough trot that saw Blue Sky's losses triple in FY18 with the hollowing out revenue as pessimistic investors backed away from the company, today it has also provided clarification on breaches under investigation.

In its Annual Report on 30 August, Blue Sky noted three legal and regulatory matters of concern, but it has since been informed that the Australian Securities and Investments Commission (ASIC) does not intend to make any further inquiries into the initial two breaches.

"Blue Sky has now completed its review of the third matter in conjunction with its external legal and accounting advisers," the company said.

"The third breach relates to identified fees or third-party expenses that were allocated to certain Blue Sky closed-end managed funds in a manner inconsistent with arrangements represented in the disclosure documents for those funds."

The group claims the value of those incorrectly charged fees or third-party expenses amounted to $4.1 million plus GST, and the company has started to reimburse the relevant funds in a process that is expected for completion by 31 October.

However, a fourth breach has been confirmed relating to obligations arising from an external custodian, Australian Executor Trustee Limited (AET).

"On 31 August 2018, AET informed its clients that it did not believe it had met net tangible asset (NTA) requirements under its own AFSL [Australian Financial Services Licencee] in June, July and August 2018," Blue Sky said.

"Consequently, Blue Sky was obliged to inform ASIC of this breach on 31 August 2018. AET has subsequently rectified its NTA breach of it AFSL.

The investment fund adds it has so far received no communication from three legal firms that had been advertising for class action participants, and no claim has yet been served.

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