Just less than one month after securing financing from one institutional investor, Billabong (ASX: BBG) has announced another agreement, with better terms, from a different consortium, and which will net the company about $360 million in loan facilities, plus about $185 million to be raised through two equity issues.
The new agreement has a lower interest rate, 11.9% compared to 13.5%, and the maximum loan amount has increased up from $303 million to $360 million.
Along with the loan, there will be two equity rights issues. The first is a placement for $135 million at a share price of $0.41, which converts to about 329.3 million shares. This placement will only be for the consortium, made up of Centerbridge Partners, LP and Oaktree Capital Management LP, and based in the US.
The second placement is for non-underwritten $50 million rights issue, at $0.28 per share, available only to shareholders other than the consortium providing the funding.
In total, the $185 million will used towards paying down the new $360 term debt facility as it is used. In addition, 29.6 million options will be issued the Centerbridge/Oaktree consortium, with an exercisable price of $0.50 per share, expiring seven years after the date of grant.
As for the previous financing agreement, announced first in July, Altamont Capital Partners was going to continue on after being part of separate consortium which made a takeover offer in January for the company. When that bid fell through, Altamont Capital Partners arranged a deal to fund up to $303 million of debt at 13. 5%, and install a new CEO.
Billabong was allowed to take on alternative financing within the agreement with Altamont, however it will now be subject to a $6 million break fee, payable to Altamont. Altamont still holds about 42.3 million options which will expire in mid 2020.
The Centerbridge/Oaktree consortium will nominate three representatives to the board of Billabong, to be later voted for by the shareholders. The company also announced that a new CEO, Neil Fiske, will be instated instead of Scott Olivet, who was CEO-elect under another funding arrangement separate from the Altamont consortium.
Foolish takeaway
With all the musical chairs activities of funders and executives, it would be important to remember that the company just had a total $583 million write-down of intangibles and goodwill, and resulted in a 74% reduction of shareholder equity by $760.2 million.
Equity and earnings per share will also suffer from an immediate increase of shares. As of 30 June, there were 478.9 million shares, but with the new equity issues, the total will rise by 507.3 million to 986.2 million.
Right now the company isn't turning a profit so earnings per share isn't so important, but if and when it does, earnings per share will be diluted by a little more than half. That means lower share prices, which are multiples of the diluted earnings per share, and slower share price growth.
For older shareholders, they must feel like they have been wiped out by a wave of bad business and debt. The only saving grace is if the new management can turn the company around someday, new shareholders can at least get in at the ground floor.
For the rest, the tide has certainly gone out for them.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
