BILLABONG’S DESPERATE DEBT DEAL

Written on the 22 July 2013

BILLABONG’S DESPERATE DEBT DEAL

LAUNA Inman has been dumped from Billabong’s top job as the surfwear group has locked itself into a desperate refinancing deal with US-based private equity group Altamont Capital Partners.

Billabong and Altamont, one of two potential suitors that emerged for Billabong earlier this year, have entered into a binding $US294 million ($A325 million) debt-for-equity deal that appears hugely dilutive to existing shareholders and is likely to spell massive changes for Billabong’s Gold Coast operations.

In a stunning announcement to the Australian Securities Exchange overnight, Billabong has revealed that Inman’s controversial reign at the embattled group has been terminated in favour of Scott Olivet, the former chairman and CEO of Oakley Inc.

Billabong also has revealed that it has secured a $70 million contract to sell the DaKine brand to Altamont in the first asset sale announced since reiterating its intention to offload some of its brands in June.

Under the agreement, Billabong will effectively fall under US control as Altamont could eventually secure up to a 40.49 per cent interest in Billabong.

Time is of the essence for Billabong shareholders as the costly deal involves interest rates as high as 35 per cent on part of the debt, which will fall to 12 per cent once shareholder approval is granted.
While a big interest bill will weigh on shareholders as they vote on the proposal, also hanging over them is the prospect of Billabong having to pay a $US58.8 million ($A65 million) penalty if it breaks an exclusivity clause with Altamont.

The clause states that Billabong is liable for a penalty amounting to 20 per cent of the $US294 million ($A325 million) principal bridging facility if it either secures a new financier or if there is a change of ownership of the company before January 15 next year.
The move effectively stymies Altamont’s rival - the Paul Naude-led Sycamore Partners consortium - in progressing any ambitions it may still harbour for Billabong.

Under the refinancing agreement, Billabong has secured the $US294 million bridging loan from Altamant at an annual interest rate of 12 per cent.

It has also agreed to issue Altamont 84.5 million Billabong options, exercisable at 50c each over the next seven years.

Altamont has been given until December 31 to find long-term funding to replace the bridging finance.

It intends to do so through a $US254 million ($A281 million) term loan and through the purchase of a $US40 million ($A44 million) convertible Billabong note that can convert into redeemable preference shares at a strike price of 23.5c a share.

The interest rate payable on the convertible note is 12 per cent per annum, but until shareholders approve the note for Altamont,

Billabong will be paying interest of 35 per cent per annum on that $US40 million.

Billabong says it will endeavour to call a shareholder meeting as soon as possible to vote on the refinancing deal.

In addition to funds from Altamont, Billabong also has secured a $US160 million ($A177 million) revolving credit facility from GE Capital.

Billabong says the refinancing agreement will allow it to repay its existing syndicated debt facility in full and provide the company with working capital.

“The board believes that the Altamont consortium’s refinancing, and the changes announced today, provide the company with a stable platform and the necessary working capital to continue to address the challenges it faces,” says Billabong chairman Ian Pollard in Billabong’s statement to the stock exchange.

Apart from electing to anoint Olivet as Billabong CEO, Altamont also has been granted two seats on the company’s board, namely Altamont’s co-founders Jesse Rogers and Keoni Schwartz.

Following their appointment, Billabong will effectively be controlled from the US which leaves the company’s Gold Coast headquarters in limbo pending shareholder approval of the debt arrangements.
It is unclear how Billabong shareholders will take to the refinancing proposal.

Billabong currently has 478.9 million shares on issue.

Should shareholders agree to the deal, the number of Billabong shares could almost double to 804.8 million once all options and redeemable preference shares are issued.


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