A recent new debt offering of $155 million issued by Boardriders to Oaktree Capital Management and other lenders is being challenged by a group of previous lenders who see their rights subordinated in the new deal, which establishes collateral rights for them with regard to their previous debt of around $450 million.
They have asked the New York Supreme Court to unwind the transaction, accusing the new lenders of breaching the clauses of their original credit agreement with the parent company of Quiksilver, Billabong, Roxy and other action sports brands. They want the court to oblige the new lenders to buy enough of the debt to result in proportional participation by all lenders.
Oaktree, which is Boardriders’ controlling shareholder, is being accused in the suit of tortious interference for orchestrating the deal. The other defendants are said to include some French banks, apparently supported by the French government.
The plaintiffs note that Deutsche Bank, the former administrative agent for all the lenders under the older credit agreement, abruptly resigned when the deal was announced, citing the risk of litigation because the recapitalization was not being made on a pro-rata basis.
Under the new deal, some former debt holders were offered an opportunity to exchange $321 million in old term loan debt for the new debt at par, even though the old loans were trading in the open market at about half the original value and only as long as they would lend an additional $110 million to Boardriders.
Furthermore, the new agreement has eliminated various covenants and reporting requirements that protected the lenders.
As previously reported, in September, Standard & Poor’s took initially a critical stance toward the “super senior term loan” arranged with the new lenders. The rating agency said the new offering was “tantamount to a default” because the company is “distressed” and its lenders were not adequately compensated for accepting a more junior position in the capital structure. It reported at the time that Oaktree was contributing $65 million to the new offering and other existing lenders $45 million, accompanied by a $45 million credit facility backed by an unnamed European government.
Shortly afterwards, S&P upgraded Boardriders’ credit rating on the grounds that the company needed the money to implement its turnaround. It noted, however, that one the loan’s tranches has a high leverage covenant of 6.5 times Ebitda, and that a default may still become inevitable within six months if the company’s turnaround plan is not successful.