You could buy $100 of Blue Star bonds last week for just $2, but even at that price they were unlikely to be a bargain, if Australian media reports that the company is once again in talks with its bankers are correct.

Representatives from Blue Star, hit by the economic downturn and cut-throat competition on both sides of the Tasman, are reportedly in serious talks with its bankers, including BNZ, Commonwealth Bank of Australia and Bank of Scotland.

According to the Australian Financial Review, one of the options being considered is the appointment of an administrator.

That would be bad news for any retail bondholders still hoping to see their capital again.

Calls to Blue Star were not returned on Friday, but Shareholders Association chairman John Hawkins said the bottom line was that when bondholders voted in favour of a debt restructuring arrangement last August, they did so "in the hope some miracle might occur" for the heavily indebted group.

"Given there has been no uplift in the general economy, in fact it continues in steady decline, confirms the opinion we had that the company was unlikely to be able to trade out of its situation."

Just under a year ago Blue Star bondholders, under threat of such a complete loss, voted in favour of a complex deal to refinance Blue Star's senior debts and to extend debt maturities to 2015.

Bondholders forgave $32.3 million in unpaid interest accrued between August 2009, when interest payments were suspended, and August 2011. They also converted two-thirds ($67.5m principal value) of their $105m in $1 bonds into "amended capital bonds" at 64c. They were to begin paying interest, at 9.1 per cent, from next July.

The other third was converted into limited recourse, subordinated "participating bonds" with an aggregate principal value of $37.5m.

For their part, lenders committed to extend the maturity date for senior debt to 2015, to improve financial covenant "headroom" and provide additional capital among other measures.

At the time Hawkins warned the deal could allow the bankers to sell off Blue Star's assets if the company did not meet minimum covenant earnings and ratio levels.

The company's latest moratorium report, for the three months ended March 31, said it continues to experience difficult trading conditions and expects these to continue for the rest of the financial year.

"As at 31 March 2012, Blue Star Group was compliant with the periodic financial ratio covenants under the senior facility," it reported.

The ratio levels allow for some adverse trading by incorporating an allowance of around 15 per cent headroom between the financial performance required for covenant compliance and Blue Star's financial forecasts and long-term financial targets.

- © Fairfax NZ News