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Beach Grit

Biz: Billabong’s massive debt problem!

Derek Rielly

by Derek Rielly

Have you ever wanted to rule the stockmarket, buying while others flee? Here's your chance!

Three years ago, the US hedge funds Oaktree (and Centerbridge Partners) threw troubled surf co Billabong a lifeline with a $A386 million debt and equity package.

Billabong wore a $A265 million loan and the hedge funds took 38 percent of the company.

A couple of years later Quiksilver got, essentially, the same deal except Oaktree, using the the miracle of Chapter 11  to shrink Quik’s debt from almost a billion dollars to three hundred mill, privatised the iconic brand.

Did you ever think, during those glory days of Kelly Slater winning world title after world title, the Indies Trader mapping reefs around the world, Dane Reynolds hand-drawing mountain logos on his board and Craig Anderson inflating his little hams with Quiksilver denim, and Billabong churning out millionaires by the score in the once-depressed seaside town of Burleigh Heads, that the companies would, one day, be owned by multi-billion dollar American financiers?s

Anyway, as reported by the Australian Financial Review a few days ago and pointed out by an alert reader (GBP), the deal is coming back to haunt Billabong.

See, Oaktree and Centerbridge’s loan to Billabong comes with an 11.9 percent interest rate. Costs ’em thirty mill a year to service.

A few months ago, Billabong sold its profitable girl’s label Tiger Lily for sixty-mill to help bring down the massive debt.

Recently, shares hit a four-year low valuing the company at $145 million.

Of course, canny investors know to buy when others flee and to sell when the crowd flocks.

Is now the time to buy?