News & Analysis

Distressed investors sweeten offer

Oaktree and Centerbridge have given Billabong’s board cause for thought two days after regulators approved a rival offer from Altamont Capital Partners.    

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Oaktree Capital Management and Centerbridge Partners have made an improved counter-offer for Billabong, intensifying the battle for the Australian surfwear brand.  

The pair had already built positions in Billabong by buying up around A$289 million (€195 million; $260 million) of its debt on the secondary market according to reports.   

Their bid would provide Billabong with A$150 million ($135 million; ) in cash – more than double the amount that it would receive under Altamont’s bid. It would also reduce interest payments on the company’s debt by as much as A$143 million over the next five years, the pair said in a statement.  

According to a statement, Centerbridge and Oaktree’s offer comprises: an interim bridge loan to refinance the existing A$325 million bridge in full, at a 12 percent interest rate, maturing in March 2014; a senior secured term loan of A$325 million (‘new term debt’); and an A$135 million equity placement and A$32.5 million rights issue available to all existing shareholders. Proceeds from that rights issue would be used to pay down the new term debt to a balance of A$157.5 million the pair added.  

That new term debt is a five year facility with interest fixed at 13.5 percent per annum (6.5 percent payable in cash and up to 7 percent PIK at the company’s option). If the company’s debt is reduced through the equity raising, a 10 percent rate will apply on the remaining term debt instead of 13.5 percent. The new term debt would also be subject to an optional and mandatory prepayment mechanism.  

Following repayment of the new term debt, the Centerbridge / Oaktree consortium would be issued 29,581,854 options with a seven year term and a strike price of A$0.50 per share, the statement added. The consortium also said they “would be prepared to assist the company in ensuring that the GE Capital revolving credit facility would continue to be progressed ahead of, or concurrently with, entering into the new term debt”. 

Billabong’s board said it would consider the proposal.