Huntington Beach-based Quiksilver Inc. has struck a deal to exchange debt for shares with a financier that provided the clothing maker with a lifesaving investment and loan deal last year.
Quiksilver plans to exchange $75 million worth of secured term loan debt for 16.7 million shares with New York-based Rhone Group LLC.
The company is exchanging the shares at a rate of $4.50 each, valuing the deal at $21.2 million.
Quiksilver’s shares at $4.84 on a market value of $620 million.
The company also has the option to offer more shares to Rhone in exchange for forgiving $65 million in additional debt on its secured term loans, which have a balance of about $160 million.
Quiksilver, the largest maker of clothes inspired by surfing, skateboarding and snowboarding, said it plans to seek financing to pay off the reminder of the loans.
Eliminating payments on the debt stands to boost its profits, according to Quiksilver.
“This exchange offer is an important step toward further de-leveraging our balance sheet and will provide us with additional operating flexibility in an improving business environment,” Chief Executive Bob McKnight said.
The moves stand to make Rhone an even bigger investor in Quiksilver. The company owns warrants to buy 16% of Quiksilver and holds two seats on the company’s board.
If the debt-for-stock swaps go through, Rhone stands to own 30% of Quiksilver. The company said it plans to enter a pact with Rhone that would cap its ownership.
Last year, Quiksilver struck a deal with Rhone to borrow $150 million over five years to help the company refinance a U.S. line of credit and consolidate its European debt.
The deal was seen as a lifesaver for Quiksilver, which nearly was sunken by 2005’s $560 million ill-fated buy of French ski maker Rossignol.
Quiksilver ended up unloading money-losing Rossignol in a $50 million fire sale in 2008 but was left with about $1 billion in short- and long-term debt from the deal and borrowing to keep Rossignol afloat before the sale.
In the past two years, the company also has weathered the worst downturn in clothing sales in recent memory.
Quiksilver’s precarious position meant it paid a price to stay alive.
The Rhone loans come at a 15% interest rate, steeper than Quiksilver’s debt before. And the investment firm now is set to own nearly a third of Quiksilver.
But Quiksilver had little choice. In its darkest hour, Quiksilver faced the prospect of a sale of part or all of the company or bankruptcy.
Quiksilver now is starting to show signs of a turnaround.
Earlier this month, Quiksilver easily beat Wall Street expectations with results for its recently ended quarter.
Quiksilver reported an adjusted profit of $15.7 million for the three months through April, more than double its profit from a year earlier.
Wall Street analysts were expecting a solid quarter from Quiksilver. Even so, the company’s profit easily surpassed the $4.2 million in profit analysts had expected on average.
The company saw revenue of $468.3 million, down 5% from a year earlier but easily topping the $455 million expected by Wall Street.
Still, Quiksilver was tempered in its outlook for the current three months through July.
It forecast a profit in the in the “low-single-digit” range on a per share basis. At 3 cents per share, that would be a profit of $4.3 million.
Analysts had been expecting a profit of $7.1 million, or 5 cents a share.
Quiksilver forecast revenue to be “down in the low teens on a percentage basis” from a year earlier, when the company saw $501 million in revenue.
Analysts had been looking for a yearly sales decline of about 3%.
The company’s “profitability has bounced back, but its revenue outlook remains challenging,” said Mitch Kummetz of Milwaukee-based investment bank Robert W. Baird & Co.
