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UPDATE 3-Second Australian private equity-owned firm falls to creditors
March 30, 2011 / 3:42 AM / 6 years ago

UPDATE 3-Second Australian private equity-owned firm falls to creditors

* Colorado board says lenders reject recovery plan

* Affinity-owned Colorado owes creditors some A$400 million

* Owns 430 stores selling Colorado, Williams and JAG brands

* Other PE-owned retailers shelve IPO, sale plans (Updates amount owed, adds details on Colorado sales, Affinity investments)

By Victoria Thieberger

MELBOURNE, March 30 (Reuters) - Australian clothing and footwear retailer Colorado Group surrendered control of the business to its lenders on Wednesday, the second private-equity-owned store chain to do so in Australia in as many months.

Colorado’s lenders, including Mizuho Corporate Bank , National Australia Bank and several hedge funds, are owed about A$400 million ($411.5 million).

A string of interest rate hikes last year interrupted a tentative consumer recovery, forcing Australian retailers to resort to discounts to revive sales.

The environment has been particularly harsh for some private equity owners that bought at the peak of the buyout boom in 2006 and 2007 and employed high levels of gearing. Two retailers -- Colorado and REDgroup Retail, which owned the Borders and Angus & Robertson chains -- have now been forced into the hands of lenders, while others have shelved IPO plans.

“Despite extensive efforts by the board and management to facilitate an orderly restructure of the business, the position of the lenders now leaves the board with no alternative other than to appoint voluntary administrators,” the Colorado board said in a statement.

Colorado, bought by Affinity Equity Partners in 2006 for A$430 million has about 430 stores in Australia and New Zealand with brands including Colorado, Williams and JAG.

Ferrier Hodgson, a specialist restructuring company, said in a statement it has been appointed as receivers and managers for Colorado and the appointment was made “by the syndicate of secured creditors owed $400 million.” Under receivership, the stores can continue trading under the control of creditors.

Sources in Australia’s A$22 billion private equity industry say other private equity-owned retail groups also face a tough trading climate.

The Rebel Sports chain, owned by Archer Capital, had planned an IPO last year, but shelved plans as retail conditions deteriorated, and cinema chain Hoyts, owned by Pacific Equity Partners, told Reuters earlier this month it also postponed an IPO or sale.

“If you don’t have either a must-have brand which is a leader in its category, or the lowest price point, you will struggle. And where you have big debt loads -- they can’t be serviced,” said one private-equity industry source who asked not to be named because of company restrictions on speaking to the media.

Other smaller private-equity owned retail firms that have been looking for a buyer in recent months include Bras n Things, clothing chain Witchery and vacuum cleaner retailer Godfreys.

RETAILERS HIT HARD

High and low-end retailers have been caught unprepared by the persistent weakness of consumer spending in the past six months, despite a solid economy, robust income growth and a jobless rate hovering around 5 percent.

Arnhem Investment portfolio manager Martin Duncan said shops most at risk were small retailers that cannot absorb as much discounting as the larger chains and private equity-owned firms.

“The gearing levels in some of these unlisted apparel retailers are very high, so there is a probability that you will see a couple more fall over, particularly where private equity bought in a couple of years ago when conditions were better,” he said.

Colorado posted a net loss of A$70 million last fiscal year, on sales of A$465 million. The largest brand, Colorado, faced stiff competition from other casual clothing chains including Kathmandu , while its shoe brands performed better.

Local media reports have said that retail magnate Solomon Lew, head of Premier Investments , might be interested in some of Colorado’s brands. The reports also said the Myer department store might have an interest.

Myer however, said on Wednesday it was not interested in buying any brands from Colorado because it wanted to focus on its existing operations before adding more brands. [ID:nS9E7E801V]

Colorado had breached debt covenants after a debt extension of six weeks expired last Tuesday and was not extended again.

Earlier this year, lenders BOS International Australia and Credit Suisse sold some of the senior debt of Colorado at around 40 percent of par.

Hong Kong-based owners Affinity Equity Partners were not available for comment.

This is not the first time Affinity has experienced problems with its portfolio companies. In February this year it sold out of troubled shipping firm Jaya Holdings in Singapore and in late 2009 it exited precision engineering firm First Engineering Corp, also in Singapore, in a debt-for-equity swap that left bank creditors in charge of the firm.

$1 = 0.972 Australian Dollars Additional reporting by Stephen Aldred; Editing by Ed Davies and Matt Driskill

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