* 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
By Victoria Thieberger
MELBOURNE, March 30 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
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
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
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
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.
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)