MARKET WATCH: Quiksilver 8K On Debt Extension

Jeff Harbaugh

• March 10 2009
• 1,145 views
• 2 comments

Yesterday, Quik filed an 8K. The complete filing is quoted below. It’s pretty short, but says a lot. Read it then I’ll have a few comments.

“On March 9, 2009, a French subsidiary of the Company, Pilot S.A.S. (“Pilot”), entered into an amendment to its €55,000,000 Line of Credit Agreement (the “LC Agreement”) with Societe Generale, BNP Paribas and Credit Lyonnais (collectively, the “Banks”) pursuant to which the Banks extended the LC Agreement from March 14, 2009 to June 30, 2009. This amendment will become effective March 13, 2009, subject to the satisfaction of certain closing conditions. The Company intends to conclude either a strategic or refinancing transaction within the period covered by this extension, in which case, the indebtedness subject to the LC Agreement would either be refinanced or repaid. The amendment also (i) increases the interest rate under the LC Agreement from EURIBOR plus 1.6% to EURIBOR plus 2.8%, (ii) requires the payment of an administrative fee of 0.5% of the outstanding balance and (iii) requires a mandatory prepayment of the LC Agreement upon the occurrence of certain events (e.g., sale of the Company’s Quiksilver, Roxy or DC Shoes trademarks or businesses, termination of the Company’s French tax consolidation, or the default under or cancellation of certain other debt arrangements).”

As you know, Quik indicated that they expected the completion of the Rossignol sale to simplify the task of restructuring some of their short term debt. This three month extension is not a restructuring, but an agreement by this group of banks to extend the agreement to give Quik more time (three months) to complete “either a strategic or refinancing transaction.” The existing banking agreement was due to expire on March 13.

I don’t know what the existing balance outstanding under this agreement is. But I assume it’s not zero or there wouldn’t have been a need to extend the existing agreement (with a fee and higher interest rate).

Obviously, if the agreement had expired with an existing balance that Quik was unable to repay, the task of getting a financial or strategic transaction completed would have been complicated to say the least. It was not in either the banks or Quik’s interest to not do some kind of extension.

So, we know that Quik is continuing to look for a deal. We know that this group of banks at least did not find the Rossignol sale adequate to allay their concerns about Quik. We know the group is not prepared to restructure the existing debt (that is, push out the maturity on the debt) without knowing how they are going to either be paid off or have a capital structure with which they are more comfortable.

And I guess that’s all we know.

Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.