10 September 2015, Written by Nick Nichols


AMERICAN hedge fund Oaktree Capital Management appears to have developed a taste for surfwear labels, but the immediate implications for one of its pet projects, Billabong International (ASX:BBG), remain unclear.

Two years after making a play for Billabong, it has emerged that Oaktree, a fund that specialises in distressed assets, is doing much the same with Quiksilver Inc, which has filed for bankruptcy protection in the US.

Oaktree has put forward a $US175 million refinancing deal for Quiksilver, as well as a restructure package that aims to bring the struggling business back on its feet.  However, Quiksilver notes that its European and Asia-Pacific businesses and operations 'remain strong and are not part of this filing'.

The Quiksilver move, said to have been in the pipeline for months, prompted Oaktree's managing director Matt Wilson to resign from the Billabong board this week. The reason given was a potential conflict with Oaktree's investment portfolio.

In a story that mirrors Billabong's turmoil of recent years, Quiksilver posted a $US327 million loss in fiscal 2014 and a $US37.6 million loss in its latest quarter. Its shares have fallen almost 80 per cent in the past year and it's had a number of changes at the top in the past three years.

The company, founded in the Victorian beachside town of Torquay in the late 1960s, has struggled under the weight of debts, with successive strategies including downsizing failing to stem the losses.

Andy Mooney, who was CEO for two years, left the company in March with the position filled by former company president Pierre Agnes who has been with the company for 27 years.

Now it emerges that Agnes has been talking to Oaktree for some months with a view to rebuilding the company.

"Oaktree's financial strength and expertise, deep experience working with companies in situations similar to ours, and successful history operating in our industry make them an exceptional partner for us going forward," says Agnes.

The big issue for Billabong is how the involvement of Oaktree which will affect its own restructuring program put in place when Oaktree joined forces with Centerbridge Partners to provide a $380 million debt and equity refinancing deal for the former surfwear powerhouse.

Between them, Centerbridge and Oaktree own about 38 per cent of Billabong. But the Quiksilver rescue comes ahead of 329 million Billabong shares, issued in 2013 as part of the equity funding deal, being released from escrow on September 15.

There is no suggestion that either Centerbridge or Oaktree plan to sell their interest, although the release of the shares brings that possibility into play.

Last month, Billabong posted a $4.1 million bottom-line profit for FY15, its first positive financial result in five years.

The bottom-line figure was buoyed by a favourable exchange rate and, while constant-currency earnings from continuing operations were down in most regions, the company reported business growth in Europe.

However, the latest profit figures show the company still has some work ahead to rebuild its fortunes.

While Billabong this week put on a brave face following Wilson's departure from the board, highlighting Oaktree's ongoing support for the turnaround strategy, the Quiksilver play has thrown a new element of uncertainty over the company's future.

Billabong has downplayed the latest development.

"Our focus is on our customers, our brands and continuing the positive progress of our turnaround strategy globally," a spokesman told Business News Australia.

Author: Nick Nichols





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