WILMINGTON, Del. (The Deal) -- Unable to stay afloat because of a lack of liquidity, surfwear retailer Quiksilver (ZQK) has paddled into bankruptcy court with a lifeline from noteholder Oaktree Capital Management.
The Huntington Beach, Calif., company and 10 affiliates filed bankruptcy petitions in the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Wednesday. The companies sought joint administration of the cases in a motion, but a first-day hearing has not been set before Judge Kevin J. Carey.
In a statement Wednesday, Quiksilver said Oaktree has agreed to sponsor a reorganization plan, which it intends to file in the near future. A plan support agreement with Oaktree would have the lender swap its debt for equity in the reorganized company.
In its statement, Quiksilver added Oaktree and Bank of America (BAC - Get Report) have agreed to provide the company with $175 million in debtor-in-possession financing to fund the Chapter 11 process.
According to a Wednesday DIP motion, the financing would include a $115 million term loan led by an Oaktree affiliate and a $60 million asset-based loan led by BofA.
The term loan would be priced at 12%, or 14% on default, and would carry a $2.3 million termination fee.
The ABL would be priced at Libor plus 3.5% or a base rate plus 2.5% at the option of the borrower. It would carry a 0.5% unused commitment fee, 1.5% closing fee and 3.5% letter of credit fee.
The latter facility would repay certain prepetition revolving debt, which includes $60.78 million outstanding on a first-lien revolver due May 24, 2018 (issued July 31, 2009), and €29.43 million ($32.9 million) outstanding on a first-lien revolver due Oct. 31, 2016 (issued Oct. 31, 2013).
Both postpetition loans would mature in 150 days.
The DIP financing includes certain milestones, such as requiring Quiksilver to file a plan and disclosure statement within 30 days and win disclosure statement approval within 75 days.
In a Wednesday motion seeking permission to enter into the PSA with Oaktree, Quiksilver said the private equity firm and its affiliates hold 73% of the company's outstanding U.S. secured notes.
Quiksilver has $280 million in 7.875% first-lien notes due Aug. 1, 2018, as well as $225 million in senior unsecured notes due Aug. 1, 2020. The debtor also has $200 million in 8.875% senior unsecured notes due Dec. 15, 2017, with European lenders.
Under the reorganization plan linked to the PSA, administrative and priority claims would be paid in full.
Secured noteholders would receive equity in the reorganized debtor in an amount that would be laid out in the plan. Oaktree also has committed to backstop two rights offerings for common shares of $122.5 million and €50 million to provide the debtor with additional liquidity.Unsecured creditors, including noteholders, would receive $7.5 million in cash.
Holders of guaranty claims based on the debtor's guarantees of its euro note obligations would have their claims reinstated.
Equity holders would be wiped out.
Quiksilver would fund the plan with the rights offerings, a $75 million asset-based exit loan and, potentially, an exit term loan.
If Quiksilver entered into any transaction other than the PSA within a year following its termination, Oaktree would be entitled to a $20 million breakup fee.
In a Wednesday declaration, Quiksilver CFO Andrew Bruenjes said the company has been in an "operational turnaround" since 2013.
Quiksilver has suffered from a lack of liquidity "exacerbated by underperforming retail stores and late deliveries of products to wholesale customers," he said.
The company's early restructuring effort included the sale of Mervin Manufacturing Inc., a manufacturer of snowboards and related products, for $58 million in November 2013, as well as the divestiture of other noncore businesses. In January 2014, the company sold its Hawk Designs brand for $19 million. In December, it sold its 51% ownership stake in e-commerce business Surfdome Shop Ltd. for $16 million.
In spite of these efforts, the company reported a net loss in the first fiscal quarter of 2015, and as The Deal reported on July 30, the company hired Peter J. Solomon Co. to help evaluate financing alternatives. Those talks ultimately led to the Oaktree deal.
Quiksilver designs and sells apparel, footwear, accessories and related products under the Quiksilver, Roxy and DC brands.
In the declaration, Bruenjes said the company "caters to the casual, outdoor lifestyle associated with surfing, skateboarding, snowboarding and motocross, among other activities."
The company's products are sold in more than 115 countries in wholesale stores, company-owned retail stores and its e-commerce websites. In its Wednesday statement, the company said its European and Asia-Pacific businesses "remain strong" and are not part of its Chapter 11 case.
The company had $337 million in assets and $826 million in liabilities as of July 31. In addition to its noteholders, Quiksilver's largest unsecured creditors include C&K Trading (owed $7.26 million), Samil Tong Sang ($5.55 million), Northstar Sourcing Group ($4.51 million), Coins International ($3.89 million) and Dragon Crowd Garment ($3.24 million).
Quiksilver shares were down 3.54% on Wednesday morning to 43.9 cents.