Quiksilver Files for Chapter 11 Bankruptcy Protection

On Sept, 9, Quiksilver, one of the largest manufacturers of surfwear and other boardsport-related equipment in the world

On Sept, 9, Quiksilver, one of the largest manufacturers of surfwear and other boardsport-related equipment in the world, announced that it had filed for Chapter 11 bankruptcy protection, according to the Wall Street Journal. In court papers, the company claimed that it plans to hand over control to its largest lender, Oaktree Capital Management LP.

Record sales losses, massive debt

The surfwear retail giant stated in court filings that shifts in consumer tastes, the global financial crisis and a rise in competition in the teen consumer market from with low-cost companies like Billabong and H&M, had led to its decision to seek bankruptcy protection.

Following a decade of profitability, Quiksilver’s U.S. operations began to suffer quickly, as it lost approximately 80 percent of its market share in 2014, according to a CNBC report. Further, the company suffered from a 14 percent drop in sales in 2014, resulting in a $38 million loss, which brought revenues down to $397 million, margins to 48.9 percent and net losses to $309 million. This trend has continued this most recent quarter as the company posted $333 million in revenues with sales down 18 percent, resulting in a $37 million loss, a net loss of $38 million and a 47.1 percent margin drop. All told, Quiksilver has reported double-digit percentage revenue losses for five consecutive quarters, which has seen its market capitalization in the U.S. market fall from its peak of $2.3 billion down to $300 million.

Contributing to its financial losses were Quiksilver’s expansion efforts in 2004, which accrued over $1.1 billion in debt for the company. According to a Bloomberg report, Quiksilver listed $826 million in total debts and $337 million in total assets.

Earlier this year, Quiksilver laid off more than 80 employees at its flagship location in Huntington Beach, California.

Plan calls for the company to swap its debt for equity

As part of its Chapter 11 filing, Quiksilver reached a $279 million secured bond debt-for-equity Plan Sponsor Agreement with its largest creditor, Oaktree Capital Management. In a Business Insider report, the plan calls for Quiksilver to transfer a majority stake to Oaktree in exchange for $175 million in financing, in order to continue operations through the bankruptcy period. This restructuring plan, which is subject to court approval, states that Oaktree will back 73 percent of Quiksilver’s senior debt.

The company’s Eurobond holders also agreed to waive technical defaults that may come up throughout the bankruptcy period, which enabled the company to restructure U.S. operations.

After its Chapter 11 filing, StreetInsider reported that Quiksilver has requested “first day” relief to protect its customers, vendors and stakeholders through the transition into Chapter 11 bankruptcy protection. These requests for relief are centered around the company’s ability to ensure that it can continue wage and salary payments as well as employee benefits and customer reward programs.

Although Quiksilver intends to liquidate a portion of its assets, the goal is to re-emerge from the bankruptcy period as a viable business in the U.S. market. In court documents, the company stated that its international operations will not be affected by its U.S. holdings.

Quiksilver’s Chapter 11 bankruptcy filing is a growing retail trend

Several brick and mortar retail chains have sought Chapter 11 bankruptcy protection in recent years. Chains like RadioShack Corp. and Frederick’s of Hollywood Inc. have followed suit, citing fallen sales and revenues as the result of increased competition and the financial crisis.