Surfs up for Quiksilver
November 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING
Financier Worldwide Magazine
Storied Australian clothing brand Quiksilver Inc has filed for Chapter 11 bankruptcy protection for its US units in September after losing around 80 percent of its market value in recent years.
According to a statement announcing the company’s decision, Quiksilver’s filing in the United States Bankruptcy Court for the District of Delaware is supported by 73 percent of the company’s senior debt holders. Quiksilver’s filing listed assets of $337m and liabilities of $826m.
Quiksilver’s operations in Europe and the Asia-Pacific region are not a part of the filing. According to the company, sales in those regions “remain strong”. Indeed, sales outside the US accounted for 66 percent of the company’s net revenue in 2014. In the US, however, sales declined more than 10 percent and the company recorded losses in excess of $300m.
The company has noted that it intends to continue operations throughout its bankruptcy, and announced its intention to secure a loan of $175m from affiliates of Bank of America and private equity firm Oaktree Capital Management.
According to Quiksilver’s filing, the company’s debtor-in-possession facility is comprised of a $115m term facility, with access to $70m being sought on an interim basis, and a $60m asset-backed revolver. Interest is set at 12 percent per year, and the facility matures in 150 days.
Under the terms of the agreement struck with Quiksilver’s debtors, Oaktree and a group of the company’s other noteholders will now take control of the Quiksilver brand in the US. Quiksilver plans on converting around $279m in secured notes into equity. Oaktree owns around 73 percent of those notes.
Along with 47 factory outlets, the company currently operates 75 stores across the US, and will close 27 during the bankruptcy.
“After careful consideration, we have taken this difficult but necessary step to secure a bright future for Quiksilver,” said Pierre Agnes, the company’s chief executive. “With the protections afforded by the Bankruptcy Code and the financing provided by Oaktree, we will not only be able to satisfy our ongoing obligations to customers, vendors and employees, but we will also have the flexibility needed to complete the turnaround of our US operations and re-establish Quiksilver as the leader in the action sports industry. Our fresh capital structure, with a very low level of debt for our industry, will enable us to invest in and reinvigorate our brands and products. We are confident we will emerge a stronger business, better positioned to grow and prosper into the future.”
Quiksilver was founded in Australia in 1969. The company’s US division opened in 1976 and the American business went on to purchase its parent organisation in 2002. The company has enjoyed a storied history gaining the patronage of a number of high profile surfers and athletes. In 1986 it became the first surfwear company to go public. Its zenith came in the 1990s when it became almost ubiquitous in certain areas in the US, appealing to young shoppers keen to embrace the burgeoning cultures associated with surfing, skateboarding and snowboarding.
Despite the company’s dominance, in recent years Quiksilver has lost much of its lustre. The company was significantly impacted by the financial crisis as more price conscious consumers turned to newer, cheaper entrants into the market. As a result, Quiksilver has gone the way of many youth oriented clothing brands in the US in recent years, forced into bankruptcy protection as the market changed around them. While tastes have evolved and consumers have become more price savvy, Quiksilver seemingly stood still.
Efforts were made to restructure the firm. As well as the store closures, in 2014 Quiksilver sold its licensed apparel subsidiary Hawk Designs Inc for around $19m and in March 2015 current chief executive Pierre Agnes replaced Andy Mooney in the role. Mr Mooney is believed to have irritated the company’s retail partners by offering significant discounts online.
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