Bloomberg News

Billabong Sees Revival With Oaktree-Centerbridge Debt Plan (1)

September 19, 2013

Billabong Store

A shopper browses merchandise inside a Billabong International Ltd. retail store at the company's headquarters in Burleigh Heads, Australia. Photographer: Patrick Hamilton/Bloomberg

Billabong International Ltd. (BBG), Australia’s largest surfwear company, said it’s better placed to rebuild its business after accepting a refinancing plan from Oaktree Capital Management LP and Centerbridge Partners LP.

The long-term financing terms offered by the U.S. funds are better than those proposed by Altamont Capital Partners, Chairman Ian Pollard said in an interview today. Neil Fiske, former chief executive officer of outdoor-wear company Eddie Bauer Holdings Inc., will be appointed as Billabong’s CEO and start work with a meeting in California Sept. 21, he said.

“The key thing is that this financing and this relationship is in place and has permanence,” Pollard said by phone. “Our job now is to focus on rebuilding the business.”

Billabong lost A$860 million ($816 million) after tax in the year ended June and wrote down the value of its 40-year-old namesake brand to zero as a drop in sales put revenue below the company’s operating costs amid store closures, firings and a breach of debt terms.

The company’s shares rose 5.6 percent to 47.5 Australian cents at the close in Sydney, the highest level since Sept. 3. The S&P/ASX 200 benchmark advanced 1.1 percent.

“They can fund themselves a lot more cheaply and with a lot more clarity now,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said by phone. “The next question is, where is the income going to come from, and are they going to compete going forward?”

Consulting Costs

Worth almost A$4 billion at its peak in 2007, Gold Coast, Australia-based Billabong’s market value tumbled to A$216 million as of yesterday.

The company fielded takeover or refinancing proposals for all but five weeks of the time since former CEO Launa Inman took over last May. It spent A$23 million on consulting and banking costs in relation to the proposals last year, greater than the value of its earnings before interest and tax.

The employees “have had a tough year by any dimension,” Pollard said. “I’ve known the uncertainty we’ve had at the senior executive level, just because of the quite extraordinary circumstances of the company.”

Since last January, the board has fielded approaches from companies including TPG International LLC; an unnamed bidder that people familiar with the matter identified as Bain Capital; Sycamore Partners Management; Vans-maker VF Corp. (VFC:US); as well as Altamont, Oaktree, and Centerbridge.

Billabong has also sold a controlling stake in its Nixon brand to Trilantic Capital Partners for $285 million and raised another $70 million selling its DaKine label to Altamont.

Rejected Earlier

Founded in 1973 by surfer Gordon Merchant, the company had earlier rejected initial approaches from Oaktree and Centerbridge, who bought about A$189 million of its syndicated loans to support their plans.

The funds’ initial refinancing offer was delivered to the company at 2:15 p.m. on July 16, and Pollard said he hadn’t seen it when he addressed the media about 75 minutes later at Billabong’s store in Sydney’s city center to announce an alternative loan package with Altamont.

“The core distinction between the two consortiums ended up being a function of the financials,” Pollard said.

Under the terms of the package, Oaktree and Centerbridge will lend as much as $360 million to the surfwear company for six years at a fixed rate of 11.9 percent.

That compares with Altamont’s revised agreement announced Aug. 21, which would have provided a $275 million loan with a 15 percent interest rate and another $35 million at a 10 percent rate, both with five-year terms.

Shareholding

The accepted offer will also give Billabong’s existing shareholders a larger stake in the company, with Oaktree and Centerbridge buying new shares and options that could ultimately give them between 34 percent and 41 percent of the company, according to the statement today.

The Oaktree and Centerbridge group will buy 329 million newly issued shares at 41 Australian cents each, giving Billabong A$135 million in cash. Other shareholders will be able to buy a further 179 million new shares for 28 cents each, to provide a further A$50 million in cash.

Billabong will also issue about 30 million options to the funds, which can be converted into shares for 50 Australian cents each within seven years.

Altamont said it declined to revise the terms of its proposal. The group is “no longer pursuing long-term financing with the company,” Ilse Schache, a Shanghai-based spokeswoman for Altamont, said in an e-mailed statement.

Altamont will still hold options which can be vested at 50 Australian cents each to give it a stake of about 4 percent, and will be entitled to one nominee on Billabong’s seven-person board while it holds the options or shares.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net


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