Billabong International Limited (ASX:BBG) wiped out yesterday, and still hasn’t come up for air. Billabong continues to get dragged against the ragged rocks of disappointment, down a further 13 per cent in morning trade.

Just get me out. Sell, Sell, Sell!
The, I can’t stand it anymore phase, ICSIA for short, occurs when investment theories and speculation are simultaneously dashed on the jagged rocks of high debt and earnings disappointment. Billabong shareholders are screaming ICSIA, as they’re dashed on those rocks.

Billabong’s CFO, Craig White, said he is now less comfortable that the company is within covenants. That vague remark may leave shareholders less comfortable with their long term ownership position in Billabong.

Here is what I said to Share Advisor subscribers two weeks ago.

Billabong wiped out this year after management’s ill-timed expansion into retail. As the company picks itself up off the rocks, investors could be in for a gnarly ride. With $615 million in debt, a deteriorating cash conversion cycle and an ever-fickle youth market, Billabong may struggle to find its past form. However, if it manages to do so, then the current price is cheap. Speculative.

The new current price is even cheaper: 50% cheaper! But with covenants coming into question, equity holders could be wiped out. Prior to the warning I was giving management a little benefit of the doubt, but their lack of details and vague remarks is an appalling way to treat the company’s owners. Many of those owners now feel forced into making a loss/loss decision on whether to sell, based on insufficient information.

According to the AFR, there is speculation in the investment community that a share placement to a new strategic partner was a likely route. I can see that being attractive for the acquirer. You get a slice of Billabong at prices not seen this millennium, while by injecting fresh capital you assure the near-term future of the company and thus your purchase price mark’s the low!

Billabong’s team may find it hard to buy their way out of this pickle. But for current shareholders sake, I hope they can at least borrow or beg their way out.

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Disclosure: Dean has no position in Billabong.

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