Billabong International Ltd. (fka BLLAF)

[HDOGTX]

BLLAF REFINANCING OF SYNDICATED DEBT FACILITIES
SALE OF DAKINE
APPOINTMENT OF NEW CHIEF EXECUTIVE OFFICER
NEW DIRECTOR APPOINTMENTS

http://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-irhome

GOLD COAST, 16 July, 2013: On 9 May 2013, Billabong International Limited (“Billabong” or the
“Company”) announced that it was in discussions with each of Altamont Capital Partners (“Altamont”)
and Sycamore Partners regarding proposals presented to the Company for alternative refinancing
and asset sale transactions, the proceeds of which would be used to repay in full the Company’s
existing syndicated debt facilities (“Refinancing”). Billabong today provides an update in relation to
the proposed Refinancing.
The Company today announces it has entered into agreements with entities advised by Altamont
and entities sub-advised by GSO Capital Partners1 (the credit arm of the Blackstone Group, and
together with Altamont, the “Altamont Consortium”) which will allow Billabong to immediately repay in
full its existing syndicated debt facilities. The Company has also entered into commitment letters
with the Altamont Consortium and GE Capital to provide a long term financing package for Billabong.
The immediate refinancing will be by way of a bridge financing by the Altamont Consortium of the
Company's existing syndicated debt facilities and the sale of the DaKine brand. The long term
financing will be by way of an Altamont Consortium term loan and convertible note, and a revolving
credit facility provided by GE Capital. This financing package is intended to provide Billabong with a
flexible capital structure to allow it to stabilise the business, address its cost structure, and pursue a
strategy to grow the business.
As a condition precedent to this significant investment by the Altamont Consortium, the Board of
Billabong today announces that it intends to appoint Mr. Scott Olivet as Chief Executive Officer and
Managing Director of Billabong.
In order to further adequately reflect Altamont's significant investment in the Company, Altamont will
be permitted to nominate two representatives to the Board of Billabong.
“The Board believes that the Altamont Consortium’s refinancing, and the changes being announced
today, provide the Company with a stable platform and the necessary working capital to continue to
address the challenges it faces. We had highlighted the Company's debt issues previously and it
was imperative to deliver a refinancing that retained an opportunity for shareholders to participate in
the future of the Company. The Altamont Consortium presented the best available, certain and
executable opportunity in these challenging circumstances,” said Billabong Chairman Ian Pollard.
“The transaction reflects the Altamont Consortium’s confidence in the value of Billabong’s brands
and our Company’s ability to achieve future profitable growth.”
Refinancing of syndicated debt facilities and asset sale
Billabong has entered into binding documentation with the Altamont Consortium in relation to a
US$294m (A$325m) bridge loan facility (“Bridge Facility”). The Bridge Facility is fully committed and
is expected to fund on or around Monday, 22 July 2013. The facility is committed until 31 December
2013, will incur interest of 12.0% per annum and is intended to be refinanced by the long term
financing described below.
Concurrent with signing the Bridge Facility, the Company has entered into binding documentation
regarding the sale of DaKine to Altamont for a purchase price of A$70m (“Asset Sale”). The
transaction is subject to conditions precedent which are typical for a transaction of this type. The
sale is also conditional on the completion of the funding under the Bridge Facility. It is therefore
expected that the DaKine transaction will also complete on or around Monday, 22 July 2013.
Below is a summary of the sources and uses as it relates to the Bridge Facility and Asset Sale
transactions.
1 The entities sub-advised by GSO Capital Partners are FS Investment Corp I and FS Investment Corp II; they are advised by
FB Income Advisors, LLC.
2
Transaction sources and uses2
Sources A$m Uses A$m
Bridge Facility 325 Syndicated facility 289
DaKine asset sale 70 Cash for working capital requirements 106
Total sources A$395m Total uses A$395m
As part of the Bridge Facility and the long term financing described below, Billabong has agreed to
issue 84,519,582 options to the Altamont Consortium, amounting to 15% of the fully diluted share
capital of the Company (including the options). The options will be exercisable at the election of the
Altamont Consortium at a strike price of A$0.50 per share. The options will be granted in multiple
tranches, with the first tranche of options (42,259,790) issued today. The balance of the options are
to be issued as part of the long term financing described below. The options will expire seven years
from the date of grant of each tranche.
The commitment letter executed with the Altamont Consortium for the long term financing is an
exclusive commitment. The commitment letter and the commitments it provides terminate on the
earlier of closing of an alternate financing (which would result in the payout of the Bridge Facility by
parties other than the Altamont Consortium) and 31 December 2013 (the "Termination Date"). The
exclusivity period is for the period until the Termination Date.
During the period of exclusivity, the Company and the Altamont Consortium must use commercially
reasonable efforts to pursue the long term financing. If the Company does not use such efforts and
completes an alternate financing on or prior to 15 January 2014, any prepayment or repayment of
the Bridge Facility utilising such alternate financing is subject to a premium equal to 20.0% of the
principal amount of the Bridge Facility. Similarly, if a change of control occurs before 15 January
2014, and as a result the Bridge Facility is repaid on or before 31 December 2013, such repayment
will be subject to a premium equal to 20.0% of the principal amount of the Bridge Facility.
Long term financing
As noted above, the intended long term financing is to be by way of an Altamont Consortium term
loan and convertible note, and a revolving credit facility provided by GE Capital.
Billabong has signed a commitment letter with the Altamont Consortium for a term loan of US$254m
(A$281m) (“Term Loan”), made up of a base commitment of US$200m (A$221m) and an upsize
commitment of US$54m (A$60m). Proceeds of the Term Loan are to be used to repay the Bridge
Facility referred to above. Interest payable on the US$200m base commitment will be 12.0% per
annum, payable quarterly, of which not less than 7.0% must be payable in cash and up to 5.0% may
be paid in kind (“PIK”). Interest payable on the US$54m upsize commitment will be 10.0% per
annum, payable quarterly in cash. The Term Loan will have a single financial covenant (in respect of
leverage) which will first be tested on 31 December 2014. This is intended to give the Company
sufficient flexibility to continue implementing its turnaround strategy.
In addition to the Term Loan, Billabong has also signed a commitment letter to issue a US$40m
(A$44m) convertible note to the Altamont Consortium (“Convertible Note”). Subject to shareholder
approval (described below), the Convertible Note can convert into Redeemable Preference Shares
(“RPS”). The interest rate applicable to the Convertible Note will be 12.0% per annum, payable
quarterly, of which not less than 7.0% must be paid in cash and up to 5.0% may be PIK interest;
however initially and until obtaining shareholder approval for the issue of the RPS and a portion of
the options as described below, the interest rate will be 35.0% per annum, payable quarterly, of
which not less than 10.0% must be paid in cash and up to 25.0% may be PIK interest. As a result,
the Company will seek to obtain shareholder approval as soon as possible for the issue of the RPS
and such portion of the options.
The RPS will convert to fully paid ordinary shares in the Company at a strike price of approximately
US$0.213 (A$0.235) per share, representing 25% of the fully diluted shares outstanding (including
options and the RPS). The dividend rate applicable to the RPS will be 12.0% per annum, payable
quarterly, of which not less than 9.0% must be paid in cash and up to 3.0% may be paid in ordinary
shares.
2 Excluding fees and expenses.
3
If shareholder approval is obtained before completion of the Term Loan, at the option of the
Company, RPS can be issued in lieu of the Convertible Note. If shareholder approval is obtained
after completion of the Term Loan, the Convertible Note may be converted to RPS at the option of
the Altamont Consortium. A summary of the key economic terms of the Convertible Note / RPS is
provided in Annexure A.
Billabong has also agreed to issue the balance of the options to the Altamont Consortium as part of
the long term financing. It is expected that 29,581,854 options will be granted on completion of the
Term Loan, with the balance of 12,677,938 options issued upon obtaining shareholder approval.
The number of options to be granted (and therefore subject to shareholder approval) will be
appropriately adjusted for any primary issuance of ordinary shares to Mr. Olivet (see further below)
to reflect the same ownership percentages shown in Annexure A.
If the Altamont Consortium exercises the options (for cash proceeds of A$42.3 million) and converts
the RPS into ordinary shares, the Altamont Consortium’s potential future ownership in Billabong
equity could be between 36.25% and 40.49%3. As a result, the options which exceed the issue limits
under the ASX Listing Rules and all the RPS will be subject to shareholder approval under the
Listing Rules, and the acquisition of shares upon exercise of those options or conversion of the RPS
will be subject to shareholder approval under takeover rules. It is intended that Billabong will hold a
general meeting to seek such approvals as soon as practicable, expected to be in the next three
months.
Billabong has also signed a commitment with GE Capital for an asset-based multicurrency revolving
credit facility of up to US$160m (A$177m) (“Revolving Facility”), subject to holding sufficient eligible
accounts receivable and inventory as collateral.
Management and Board changes
Billabong also announces its intention to appoint Mr. Scott Olivet as Managing Director and CEO of
Billabong. Scott is a highly experienced and well regarded action sports executive. He was formerly
Chairman and CEO of Oakley, Inc. and prior to that served as the Vice President, Nike Subsidiaries
and New Business Development where he led the portfolio of non-Nike brands, including Converse
and Hurley, both of which reported to him. While at Oakley, Scott drove 14% compound annual
growth in EBITDA and delivered an annualised return to shareholders of 28% until its ultimate
acquisition by Luxottica. Most recently, he served as Chairman of Collective Brands where he led
the company's strategic review and ultimate split/sale of the business. Scott currently serves on the
board of Skullcandy, an action sports based electronics and lifestyle company. Scott received a
Masters in Business Administration from Stanford University Graduate School of Business and a
B.A., Government from Pomona College.
As part of his commitment to the Company, Scott has stated that he intends to purchase 11m
ordinary shares in the Company with the option, at his election, to purchase an additional 4m shares
(up to 15m ordinary shares in total). Such purchases will occur on or before the close of business on
Friday, 26 July 2013 and before the appointment to his role. Mr. Olivet may satisfy these purchases,
at his option, by either purchasing shares on the open market or by subscribing for newly issued
shares4 from the Company at A$0.23 per share. At $0.23 per share, Scott’s total obligation to
purchase shares would be A$2.53 million.
As a result of the appointment of Scott Olivet, Launa Inman will step down from her role as Chief
Executive Officer and as a director of the Company. The Company is working with Scott to finalise
the terms of appointment to reflect his global experience and a US private equity style package.
Such terms will be announced with the finalisation of the transition from Launa to Scott.
“The Board wishes to thank Launa for her contributions to the Company and her resilience during the
most difficult period in the Company’s history,” said Dr. Pollard. “She has shown foresight and
direction in the creation of the transformation strategy which has already begun to show some
3 36.25% assumes Billabong pays the RPS dividend in cash. Billabong has the right to elect to pay 25% of the RPS dividend
in ordinary shares, in which case the Altamont Consortium’s potential future ownership in Billabong could be as high as
40.49% after 9.5 years, assuming the Altamont Consortium chooses to redeem its RPS at the latest possible date and that
Billabong chooses to pay 25% of the RPS dividend in equity in every period up until the conversion date. The entities
advised by Altamont and GSO Capital Partners will be acting independently with respect to any securities they respectively
acquire in the Company or with respect to any governance rights conferred on Altamont. Their holdings have been
aggregated in this announcement for ease of communication only.
4 In the event the Company issues shares to Mr. Olivet, the share counts (excluding those of existing shareholders) within this
announcement would increase accordingly to reflect the same ownership percentages shown in Annexure A.
4
encouraging signs particularly in the USA. It is also timely to recognise publicly the ongoing efforts
of the Billabong team globally during a period of significant uncertainty, especially those who have
gone above and beyond in the interests of their colleagues, the Company and shareholders.”
In order to further adequately reflect Altamont's significant investment in the Company, Altamont will
be permitted to nominate two representatives to the Board of Billabong. The two representatives are
Jesse Rogers and Keoni Schwartz, each of whom will be appointed as additional directors by the
Board and will be put forward for election at the next annual general meeting of the Company.
Jesse Rogers is a Co-Founder and Managing Director of Altamont. Previously, Mr. Rogers cofounded
and was Co-Principal Managing Director of Golden Gate Capital (“GGC”). Prior to cofounding
GGC, Mr. Rogers was a long time partner at Bain & Company, where he founded and
served as the Global Head of Bain’s Private Equity Group. Mr. Rogers is a current or past member of
the Board of Directors of a number of public and private companies, including: Beringer Wine
Estates, Employer’s Direct Insurance, Endurance Re (observer), Eye Care Centers of America,
Herbalife, Interstate National, Lexicon, Rocket Dog, Ruiz Food Products, Tactical Holdings, and
TauTona. Mr. Rogers received a Masters in Business Administration from Harvard Business School
and a B.A. from Stanford University.
Keoni Schwartz is a Co-Founder and Managing Director of Altamont. Prior to Altamont, Mr. Schwartz
was a Principal at GGC, where he completed numerous transactions in the consumer and retail,
financial services and technology sectors. In addition, Mr. Schwartz helped to build and manage the
firm’s public equities investing activities, working extensively on the firm’s public equity investing
vehicle, GGC Public Opportunities. Prior to joining GGC, Mr. Schwartz worked as a consultant in
both the Boston and San Francisco offices of Bain & Company. Previously, Mr. Schwartz also
worked as a consultant for The Bridgespan Group, a consulting firm. Mr. Schwartz received a B.A. in
History with honors from Princeton University.
Next steps
As noted above, Billabong intends to convene a meeting of shareholders to approve the issuance to
the Altamont Consortium of the RPS and relevant options. Further details of this meeting will be
provided as soon as possible, including an information booklet containing an independent expert
report.
It is the intention of all the directors to recommend the proposals which require shareholder approval
and to vote their own shareholdings in favour of them. Those proposals are:
(a) the issue of the options which exceed the issue limits under the ASX Listing Rules, and the
issue of shares on exercise of those options;
(b) the issue of the RPS, and the issue of shares on conversion of the RPS;
(c) the long term incentive components of Scott Olivet’s remuneration; and
(d) the election of Jesse Rogers and Keoni Schwartz as directors at the next AGM.
The directors’ recommendation, and their intention to vote in favour, is subject to the independent
expert opining that the issue is fair and reasonable to the Company's shareholders and in the
absence of any superior proposal.
At the same time as preparing the materials for the shareholder meeting, Billabong will be working
with the Altamont Consortium and GE Capital to agree binding documentation for the Term Loan,
Convertible Note and Revolving Facility as soon as possible.
Media or investor related queries should be directed to Chris Fogarty, Group Executive Corporate
Affairs on mobile [phone].
MARIA MANNING
COMPANY SECRETARY
5
ANNEXURE A: KEY TERMS OF FINANCING FACILITIES
Bridge Financing and Options
Commitment size US$294m (A$325m)
Applicable interest rate 12.0% cash
Maturity date 31 December 2013
Options size 7.5% fully diluted5
Options strike price A$0.50
Options maturity 7 years
Term Loan and Options
Commitment size Base commitment: US$200m (A$221m)
Upsize commitment: US$54m (A$60m)
Applicable interest rate Base commitment: 12.0%
(7.0% cash / up to 5.0% PIK)
Upsize commitment: 10.0% cash
Maturity date 5 years after closing date
Options size 7.5% fully diluted
5
Options strike price A$0.50
Options maturity 7 years from grant
Convertible Note / RPS
Commitment size US$40m (A$44m)
Applicable interest rate (after shareholder approval of the Options and RPS) 12.0% (7.0% cash / up to 5.0% PIK)
Applicable interest rate (prior to shareholder approval of the Options and RPS) 35.0% (10.0% cash / up to 25.0% PIK)
Convertible redemption date 7 years after the closing date
RPS Dividend 12.0% (9.0% cash / up to 3.0% stock)
RPS conversion price US$0.213 (A$0.235)
RPS maturity 9.5 years
Asset-Based Revolver
Commitment size US$160m (A$177m)
Applicable interest rate Base rate plus 2.00% margin
Accounts Receivable Advance Rate up to 85%
Inventory Advance Rate up to 90%
Maturity 5 years
5 7.5% of fully diluted shares outstanding of 563,463,874 (including 84,519,582 options).
6
ANNEXURE A: KEY TERMS OF FINANCING FACILITIES (CONT.)
Option and RPS dilution mechanics
Current ownership
Ownership after
issuance of options
Ownership after
issuance of options
and RPS6
Ownership after
issuance of options,
RPS and equity
payment of RPS
dividend7
# shares
(m)
% diluted
ownership
# shares
(m)
% diluted
ownership
# shares
(m)
% diluted
ownership
# shares
(m)
% diluted
ownership
Current shares
outstanding
478.9 100.00% 478.9 85.00% 478.9 63.75% 478.9 59.51%
Options
84.5 15.00% 84.5 11.25% 84.5 10.50%
RPS
187.8 25.00% 187.8 23.34%
Equity payment
of RPS dividend
53.5 6.65%
Diluted shares
outstanding
478.9 100.00% 563.5 100.00% 751.3 100.00% 804.8 100.00%
Note: Totals do not add due to rounding.
6 The 36.25% sum of Options and RPS % diluted ownership assumes Billabong pays the RPS dividend in cash.
7 Billabong has the right to elect to pay 25% of the RPS dividend in ordinary shares, in which case the Altamont Consortium’s
potential future ownership in Billabong could be as high as 40.49% after 9.5 years, assuming the Altamont Consortium
chooses to redeem its RPS at the latest possible date and that Billabong chooses to pay 25% of the RPS dividend in equity
in every period up until the conversion date