US funds seek regulatory review of Billabong deal

Lenders say refinancing agreement is ‘anti-competitive’

Billabong International, the troubled Australian retail group, faces a possible regulatory review of its A$325m (US$298m) refinancing deal with Altamont Capital Partners following a complaint from lenders.

Centerbridge Capital Partners and Oaktree Capital Management, which own nearly all of the company’s A$289m of senior debt, have asked Australia’s Takeover Panel to examine an agreement they say is “anti-competitive” and “coercive”.

The two US distressed debt funds want to remove two clauses – a A$65m termination fee and a 35 per cent interest rate on a A$44m convertible loan. This will be charged until the deal is approved by shareholders.

They also sought interim orders preventing the drawdown of a A$325m bridging loan and the sale of key Billabong brand, Dakine, to Altamont for A$70m. These transactions are scheduled to take place on Monday.

The Takeover Panel on Friday declined to put those two key parts of the deal on hold but said no decision had been made on whether to conduct proceedings.

“The applicants submit that the convertible note[’s] increased coupon and termination fee amount to lock-up devices that are anti-competitive and coercive,” the Takeover Panel said in a statement. “The applicants also submit that there has been no disclosure of the terms of the exclusivity agreements or the details of the circumstances under which the termination fee may be payable.”

Billabong signed the recapitalisation agreement with an Altamont-led consortium on Tuesday, claiming the deal was the “best available, certain and executable opportunity” in “challenging circumstances”. Under the terms of the agreement, the consortium could emerge with a 40 per cent stake in Billabong.

Two days later Centerbridge and Oaktree submitted a rival refinancing proposal, which they said offered a simple and sustainable capital structure, as well as a lower debt burden and interest costs. Under the terms of the counter offer, the funds would convert A$189m of outstanding debt into a 61.2 per cent equity stake and refinance a further A$100m of debt.

That proposal was swiftly dismissed by Billabong.

In response to the latest move by the two distressed debt funds, Billabong said it disagreed with the basis for the application: “The company notes that as part of the Panel process, no party should directly or indirectly cause, participate in or assist in the canvassing in any media of any issue that is before (or is likely to be before) the panel.”

Shares in Billabong have risen more than 50 per cent since the deal with Altamont was signed. They gained a further 9.6 per cent to A$0.40 on Friday, valuing the company at more than A$185m.

Campbell Davidson, senior partner at law firm Squire Sanders, said the Takeover Panel would probably examine the deal. “The Panel is not strictly limited to takeovers. It looks at change of control transactions as well,” Mr Davidson said.

He added that the Panel had also issued guidance on break fees, saying they should generally not exceed 1 per cent of the target’s equity value.

If Billabong scraps its refinancing deal with Altamont it must pay a A$65m break fee, according to traders.

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