Oaktree takes hold of Blue Sky's water assets

The carving up of Blue Sky Alternative Investments (ASX: BLA) has begun with assets set to be filtered through to the vulture fund that came to its rescue in the darkest hour. 

Yesterday the embattled company announced restructuring would commence this week with the transfer of its water and agricultural funds - known as its real assets business - to a subsidiary of Oaktree Capital.

The US debt giant had swooped in to keep Blue Sky afloat in September last year with a $50 million loan, but a failure to meet debt covenants drove the Brisbane outfit into receivership in May.

The real assets will soon be owned by Oaktree subsidiary Australian Alternative Asset Partners (AAAP).

It is understood by the receivers and managers that AAAP will enter into arrangements with Argyle Capital Partners (ACP), which is majority owned by Blue Sky Water Partners managing director Kim Morison (pictured) who was also Blue Sky's interim managing director when the Oaktree agreement was made.

Morison and his team are expected to continue overseeing investment managing operations of the real assets business, with the potential for sub-advisory arrangements as well.

"It is intended that ACP will ultimately operate on a standalone basis under the leadership of Mr Morison and his management team," Blue Sky said.

"Subsequent phases of the restructuring will involve the transition of certain assets and subsidiaries from Blue Sky to AAAP and, in some cases, will involve partnerships with key existing management of the kind outlined above in respect of the Real Assets business.

"Other assets will remain in Blue Sky and be realised over time."

The company said there would be various elements of the transaction in connection to the restructuring of Blue Sky's secured debt, with the complex process set to take "months or years".

"Shares in Blue Sky will remain suspended from trading throughout the restructuring process. A return to shareholders is not anticipated based on current expectations," Blue Sky said.

"Accordingly, in the absence of any new material development not otherwise contemplated by this announcement, the receivers and managers do not expect to provide any further market updates in relation to the restructuring process."

This week's moves follow the completion of a strategic and operational review conducted by the the receivers and managers of Blue Sky, Jarrod Villani and Mark Korda.

"Given the complex nature of Blue Sky's corporate structure and the independent operating units within the group, the restructuring will be undertaken in phases," the company said.

"After a difficult period over the past 16 months, the restructuring offers a clear path forward for employees and investors in the underlying managed funds."

Response from BAF

One of the company's spinoffs Blue Sky Alternative Access Fund (ASX: BAF) is a significant investor in both the Water Fund and the Strategic Australian Agriculture Fund, with these funds also making up a "very significant part" of its portfolio.

In response to yesterday's announcement, it clarified the underlying funds in which BAF is invested are not impacted by the news.

"The Board would like to congratulate Kim Morison and Argyle Capital Partners Pty Ltd on the announcement that Kim and his team will continue to oversee investment management operations of the Real Assets business," BAF said.

"The Board will continue its discussions with Blue Sky to deepen our understanding of how the changes referred to in the announcement may impact BAF.

"The Board also continues to be engaged in extensive discussions and activities, including receiving professional advice, to ensure the interests of BAF are adequately protected and expects to be in a position to provide an update on the management of BAF shortly."

Shortly before Blue Sky went into receivership, BAF cut supply to its parent while considering legal action.

Related story: The rise and fall of Blue Sky: A timeline from ASX powerhouse to pariah

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