Affinity-backed company enters administration

Affinity Equity Partners-backed clothing company Colorado Group has been placed into administration after its creditors rejected rescue proposals. It is the second time in six months a private equity-backed Australian business has gone into administration following Pacific Equity Partner’s REDgroup last October.

Affinity Equity Partners-backed clothing company Colorado Group has been placed into administration after failing to meet is debt obligations, according to a statement from the company.

Colorado Group said its creditors had reviewed and subsequently rejected two proposals put forward by the company “that would have allowed Colorado Group to continue to trade and avoid any need to go into administration”.

The valuations of these proposals were not disclosed, but a source familiar with the matter confirmed the amount owed to be approximately A$230 million (€168.5 million; $237.3 million). Creditors include National Australia Bank, Mizuho and Rabobank.

Affinity paid A$432 million (then €257 million; $330 million) to acquire its holding in Colorado in late 2006. However, the company was affected by the ensuing financial crisis and never truly recovered, the source said.

The size of Affinity's stake in Colorado is unclear, but according to a previous PE Asia report, under Australian law, the firm needs to acquire a minimum 90 percent shareholding of Colorado before it can proceed with a compulsory takeover of the company.

Affinity would likely have written off its initial investment in Colorado Group, the source added, although media reports noted that administrators and receivers are seeking ways to extract value from the group's assets in Australia and New Zealand.

The news of Colorado Group’s administration follows last month’s administration of Pacific Equity Partner’s (PEP) REDgroup, which owns and operates Angus & Robertson, Borders and Whitcoulls bookstore chains in Australia and New Zealand.

According to Australian media reports, REDgroup in October last year unveiled a full-year loss of A$43 million, which it apportioned to non-cash inventory provisions as it completed the integration of bookseller Borders.

PEP acquired REDgroup before its 2008 re-branding from UK retailer WH Smith in May 2004. The company was then known as A&R Whitcoulls. REDgroup currently operates various subsidiaries in Australia, New Zealand and Singapore including specialty calendar store Calendar Club, news agency chain Supanews and New Zealand textbook brand Whitcoulls.