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  Centerbridge and Oaktree make

Centerbridge and Oaktree are making another run at Billabong and have submitted a rival refinancing bid to the company.

Billabong is in the midst of closing a long-term financing package with Altamont Capital Partners and has well-regarded CEO Scott Olivet waiting to formally take the job upon completion of the deal.

In the interim, Olivet has been working as a consultant, and I have heard from Billabong employees that they have been impressed with what he had to say.

The employees had begun to feel a sense of optimism after an almost unfathomable about of turmoil, but alas, the long Billabong saga is not yet over.

After Centerbridge and Oaktree went public with its latest offer, Billabong issued a release saying it will consider any proposal under its obligations to shareholders. It also said it is still focused on finalizing the long-term financing with Altamont as soon as possible so it can get back to rebuilding the business.

Here is the release issued by Centerbridge and Oaktree detailing their proposal:

Press Release:

Centerbridge/Oaktree Consortium Provide Billabong Board Superior Terms for Company, Shareholders and its Other Stakeholders

Centerbridge and Oaktree offer superior terms compared to Altamont and GSO proposal:

 

–  Lower interest rate on Billabong’s debt will result in interest savings of up to A$119- 143m over 5 years

–  C/O Consortium offering to pay ~81% premium (~36c vs. ~20c per share) to the Altamont Consortium for an approximately equivalent equity stake

–  Under the Altamont Proposal, Billabong could be left with a much higher level of debt (A$276m) vs. the C/O Consortium Proposal (A$158m)

The Centerbridge and Oaktree Consortium (“C/O Consortium”) today released details of a revised recapitalisation proposal (the “C/O Consortium Proposal”) that it has delivered to the board of directors (the “Board”) of Billabong International Limited (the “Company”). The C/O Consortium’s proposal provides the Board with greater flexibility for addressing the Company’s near- and longer-term capital and operational needs when compared to the revised Altamont and GSO proposal (the “Altamont Consortium” and the “Altamont Proposal”).

The C/O Consortium believes the Company has a well-recognized portfolio of brands with great future potential. For the Company to overcome the numerous strategic and balance sheet issues it is facing, it needs the right strategy, capital structure and strategic partners with demonstrable track records in investing and building value in the retail and consumer industries.

The C/O Consortium has also provided to the Board, at their request, significant detail around the C/O Consortium’s intended strategy and vision for the business, which is aimed at putting the Company on a path to stability, growth and success, as well prior examples of the C/O Consortium’s proven track record in supporting companies to enhance shareholder value through a minority equity interest.

The C/O Consortium has also informed the Board that it has engaged with qualified CEO candidates that it will introduce to the Board in the event that Scott Olivet is unavailable to serve as CEO under a transaction with the C/O Consortium. These potential candidates are all highly experienced in the retail sector and have proven turnaround skills.

Given the announced timing on entering binding long form documentation on the Altamont Proposal, the C/O Consortium believes it is appropriate that shareholders and other stakeholders are made aware of the C/O Consortium Proposal terms before the Altamont Proposal is implemented.

See Page 2 for more details of the Centerbridge/Oaktree proposal

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Press Release continued

The C/O Consortium Proposal is structured as follows:

– if required, an interim bridge loan to refinance the current A$325 million bridge loan in full, at a 12% interest rate and maturity of 31 March 2014;

– a senior secured term loan of A$325 million (“New Term Debt”); and

– a A$135 million equity placement to the C/O Consortium and an A$32.5 million rights issue (“Equity Raising”) available to all existing shareholders, of which the proceeds will be used to immediately pay down the New Term Debt (with no prepayment premium) to a balance of A$157.5 million. The New Term Debt would have the following key terms:

– 5 year A$325 million facility;

 – fixed interest rate of 13.5% per annum (6.50% payable in cash and up to 7% payable in kind at the Company’s option);

 – if the Company’s debt balance is reduced through the Equity Raising, a 10% rate will apply on the remaining New Term Debt (instead of 13.5%);

– the remaining New Term Debt is subject to an optional and mandatory prepayment mechanism that is more favorable to the Company than the Altamont Consortium Proposal, providing more flexibility for the Company to refinance on a more cost effective basis if it so chooses;

– on execution of the New Term Debt facility agreements, the C/O Consortium will be issued 29,581,854 options with a 7-year term and a strike price of A$0.50 per share; and

– the C/O Consortium 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. The terms of the Equity Raising would be as follows:

– placement to the C/O Consortium of A$135million at A$0.35 per share (“Placement”), subject to shareholder approval;

– rights offer to existing shareholders of A$32.5 million at A$0.30 per share (“Rights Issue”) upon completion of the Placement; and

– upon completion of the Equity Raising and assuming full shareholder participation in the Rights Issue, the C/O Consortium would acquire through the Placement and Options issued 39.7% of the fully diluted equity interest in the Company.

The C/O Consortium Proposal: Superior terms to the Altamont Proposal:

– the C/O Consortium Proposal delivers cheaper cost of debt (10.0% vs. 14.3% assuming the upsize commitment is drawn) with ~A$119m-A$143m of interest savings over 5 years, assuming the equity component of both proposals were approved by shareholders;

– the C/O Consortium acquires an equivalent interest in Billabong (39.7% vs 39.2% under the Altamont Proposal) for 2.2x the amount of cash invested into the business for that equity consideration (~A$150m under the C/O Proposal compared to ~A$67m under the Altamont Proposal), with the aggregate C/O Consortium equity priced at an 81% premium (A$0.361 per share compared to A$0.199 per share under the Altamont Proposal);

– the C/O Proposal provides the ability for existing shareholders to participate (at a discount) alongside the C/O Consortium through the rights issue ensuring full alignment of interest; and

– similarly when looking at the potential longer term returns under the various proposals the C/O Consortium believes the C/O Consortium Proposal delivers superior returns to existing shareholders with a deleveraged, more appropriate capital structure (which increases the probability that the business will successfully execute its turnaround). The C/O Consortium Proposal that was delivered to the Board is capable of execution on a timeframe similar to the Altamont Proposal and only subject to the Altamont Proposal not being implemented, long form documentation being executed for the C/O Consortium Proposal and Foreign Investment Review Board approval, if required.

Background

Centerbridge and Oaktree are two of the world’s preeminent investment managers, each having substantial experience investing in the retail and consumer industries.

Centerbridge Partners, L.P. is a private investment firm headquartered in New York City with approximately $20 billion in capital under management as of May 2013. The firm focuses on private equity and credit investments. The firm is dedicated to partnering with world-class management teams across targeted industry sectors to help companies achieve their operating and financial objectives.

Oaktree is a leader among global investment managers specializing in alternative investments, with $76.4 billion in assets under management as of June 2013. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in corporate debt, private equity, convertible securities, real estate and listed equities. Headquartered in Los Angeles, the firm has over 750 employees and offices in 13 cities worldwide.