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E-Star tells analysts haircut is better for bondholders than liquidation

Troubled energy services company E-Star Alternative made the argument to analysts on Thursday that holders of its corporate bonds would be better off taking a haircut than letting the company go under liquidation, materials from the presentation published on the website of the Budapest Stock Exchange show.

E-Star recently terminated several contracts with local councils in Hungary and Romania for non-payment. Afterward, short financing to pay back bondholders, it announced it would repurchase only some of the securities it had issued at a discount.

In its presentation to the analysts, E-Star projected it could still generate annual revenue of €38.9 million, excluding the projects removed from its portfolio as well as the related costs or gains. It projected an annual gross margin of €16.9 million and EBITDA of €4.5 million. After debt servicing and principal repayment of about €3 million, the company said it would still have pre-tax cash flow of €1.5 million.

The projections were based on the assumptions investors would accept a 65-74% discount on the face value of their bonds and that E-Star can get a €1.5 billion long-term loan to use to pay back the outstanding bonds over a period of seven years.

E-Star said the upside to investors accepting the discount on their bonds and the avoidance of liquidation was getting any return at all. It also said that there was "unlocked value" in projects in Poland and Romania that could add €1 million-2 million to annual EBITDA, and that sales of assets as well as suits could generate an additional €3 million-4 million.

E-Star estimated it could raise €10.4 million from the sale of it assets, less than its loans, which come to €11.3 million. E-Star's outstanding stock of corporate bonds stands at €30.2 million, it said.