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Last updated: July 18, 2013 5:57 pm
Billabong International has received an alternative refinancing proposal from Centerbridge Partners and Oaktree Capital, the US investment groups that control most of the troubled retailer’s A$300m (US$275m) of senior debt.
Under the terms of the “unconditional” deleveraging plan, formally lodged with the company on Thursday, Centerbridge and Oaktree would swap A$189m of debt for a 61.2 per cent equity stake in the company.
A further A$100m of outstanding senior debt would be refinanced with a six-year term loan carrying an interest rate of 8 per cent. The US funds would help secure a new five-year A$175m asset backed revolving loan facility.
“The Centerbridge and Oaktree proposal is a superior proposition that will optimise the prospect of Billabong effecting its turnround plan and deliver material value to shareholders over time with a stable and sustainable balance sheet,” said a spokesperson for the two funds.
On Tuesday, Billabong signed a complex A$325m refinancing deal with a consortium led by Altamont Capital Partners, a San Francisco-based private equity group. The agreement, which also includes the A$70m sale to the consortium of key Billabong brand Dakine, could see Altamont emerge with a 40 per cent stake in company.
Centerbridge and Oaktree want Billabong to put the competing proposals to a shareholder vote before the end of the October. They claim their recapitalisation proposal offers a “simple and sustainable” capital structure for the company, with lower debts and interest payments.
Under the terms of the alternative plan, Billabong would pay A$40m interest over the next five years – well short of the A$190m Centerbridge and Oaktree claim the company would pay under the Altamont deal.
They would also scrap the “distressed” sale of Dakine and retain Billabong’s new chief executive Scott Olivet, the former chairman and chief executive of Oakley, the sunglasses manufacturer.
However, traders said Billabong would be forced to pay an A$65m break fee it if abandoned its refinancing deal with Altamont.
Speaking to reporters in Sydney on Thursday afternoon, Billabong chairman Ian Pollard defended the decision to recommend the Altamont proposal. “At the time we had to make a decision we only had one proposal that was executable.”
In a statement released after the stock market closed in Australia, Billabong said the proposal it has received from Centerbridge and Oaktree was not one “capable of acceptance”.
“The proposal is subject to conditions, a number of which are incapable of satisfaction, and others which would make any refinancing far less certain than under the Altamont consortium transactions,” it said.
The Centerbridge and Oaktree proposal is a superior proposition that will optimise the prospect of Billabong
- Spokesperson for the two funds
The Financial Times understands that relations with two US investment funds soured in recent weeks after Billabong asked for a waiver on its debt covenants.
Centerbridge and Oaktree were prepared to offer the waiver, which would have let Billabong draw down further funds from its A$400m senior debt facility, but only in return for fees of around A$40m. “It was egregious to be honest,” said one person familiar with the situation.
The waiver was meant to have been discussed on Tuesday. However, the meeting in Australia was cancelled after Billabong signed the refinancing deal with Altamont.
That decision angered Oaktree and Centerbridge which put forward an alternative recapitalisation on Wednesday morning. That offer proposal was officially lodged on Thursday afternoon.
Shares in Billabong rose 9 per cent to A$0.36.
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