Private equity-owned retailer, Colorado Group has collapsed under the weight of $396 million of debt which left it unable to cope with the slowdown in retail sales in the past seven or so month.
Lenders rejected a proposal from Hong Kong-based private equity owners, Affinity Equity Partners, that would have seen the group avoid administration in favour of a restructure that would have allowed lenders to swap their debt for equity and then have led to a trade sales in two or three years time.
This was rejected by a group of lenders owed around $230 million and wanted to be repaid.
"The Colorado Group board is disappointed with the decision of their lenders to reject proposals from the board that would have allowed Colorado Group to continue to trade and avoid any need to go into administration," the company said in a statement yesterday.
The collapse of the company is likely to leave Affinity Equity Partners and the lenders with some large losses.
(Media reports said yesterday that a number of original lenders including the ANZ had sold their debt for as little as 40c in the dollar face value).
Affinity bought Colorado Group for $430 million in 2006, when the retail market was better performing and cheap debt made private equity raids and buyouts all the rage.
According to a report in Inside Retailing Online, the group has been struggling to cope with the fragile retail environment for the last two years and posted a $62.7 million loss last financial year, dragged down by impairments.
With these items excluded, the company had a pre-tax profit of $24.3 million on revenue of $462.5 million.
According to Inside Retailing, the company is targeting a full-year profit of $18 million for 2010-11, but even that was too optimistic with Colorado saying yesterday that conditions in recent months had become even worse.
"Like many retail sector companies, Colorado Group has been operating in a difficult retail environment for some time. The last few months, in particular, have been very challenging given the effects of a tough trading environment in Australia, especially over the Christmas period," the retailer said yesterday.
Colorado has around 430 in Colorado Adventurewear stores trading as Colorado Williams The Shoemen, JAG, Diana Ferrari and Mathers Shoes.
The problems at Colorado and Red Group (Borders and Angus and Robertson) will impact the shopping mall groups, especially Westfield Retail Trust which was created late last year by Westfield Group.
All 54 Australian and New Zealand shopping malls of Westfield are in the trust and Westfield Group owns 50%.
That was done to try and give some ooomph to the Westfield group’s performance, but as that was being done, the previously solidly growing Australian retail sector was slowing as the Reserve Bank put up rates and local consumers started cutting back on their spending, a situation that has continued into this year.
And even if Westfield Retail did announce yesterday that it is spending $320 million expanding the Fountaingate shopping centre (half owned with Westfield Group), the outlook for retailing is not solid.
That has seen a growing number of retailers cut their sales and profit growth forecasts, some to the point of reporting falling sales and profits.
Some, like electronics discounter, JB Hi-Fi have been forced to slash the size of a loss-making subsidiary at a cost of $24 million off this year’s profit. And for Red Group and Colorado, the slowdown has been terminal.
Westfield Retail is in the firing line with its heavy dependence on private equity-owned retailers among its second line major chains and specialty stores.
RED Group, which is private equity owned (Pacific Equity) has gone bust and Colorado Group (Affinity Equity partners), which over 430 outlets for its various brands, collapsed as well.
It is one of seven private equity-owned chains with a presence in Westfield Retail malls.
There are reports the Godfrey’s appliance (mostly vacuum cleaners etc) is also struggling. It is reported to be available for sale, but with not much real interest.
The Rebel chain of sport goods shops is also has a major presence in some Westfield malls (and in a couple or Mirvac and AMP malls, as does Colorado and Red Group’s Borders and Angus and Robertson).
Witchery is another chain (Gresham Private Equity) with a presence in Westfield and other malls.
There has been speculation that Solomon Lew’s Premier Investments might buy it (it used to be owned by the private interests of Mr Lew). Mr Lew is also said to be ready to snap up some of Colorado’s chains, such as diana ferrari and Jag.
Bras N Things is another chain partly-owned by private equity that is on the market, but without much interest.
There’s been talk of it floating, a move unlikely in the current market. One speculated buyer has been Pacific Brands, the struggling ragtrade manufacturer and importer in Melbourne.
Bras N Things is part owned by Brett Blundy, (with Hastings Funds Management).
Blundy recently sold control of the Adairs manchester outlets and the Dusk candles and homewares chain to the Catalyst private equity group. Both are in Westfield and other malls.
