Retail industry watchers are waiting for news on the future of the Colorado Group, which is mired in more than $440 million of debt and is struggling to gain the support of lenders to keep trading.
A six-week debt extension granted by Colorado’s lenders expired yesterday and a decision on its future is expected in days.
The company, which was acquired by Hong Kong-based private equity firm in 2006 in a $430 million hostile takeover, owns iconic Australian brands including Jag, Mathers, Diana Ferrari, Williams the Shoeman and Colorado.
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 a report in Inside Retailing, the company is targeting a full-year profit of $18 million for 2010-11.
But it’s the mountain of debt that continues to worry lenders.
According to reports, the consulting wing of insolvency firm Ferrier Hodgson, a company called National Consulting Group, has completed a detailed report for lenders outlining options for the business.
These include placing the business in receivership, selling the business as a whole or attempting to sell individual brands.
The Jag and Diana Ferrari brands are likely to attract the most interest from existing retailers and brand managers.
Inside Retailing says the report from National Consulting Group has put a price of $87 million to $130 million on the businesses.If this estimate is accurate, the Colorado’s syndicate of 12 lenders are likely to be staring at some hefty losses.
In addition to the National Consulting Group report, lenders are also considering a separate report prepared by accounting firm KPMG in conjunction with the board and management of the company.
A source close to the company says this proposal would see Colorado avoid the insolvency process in favour of a restructure that should deliver a higher return in the event of a trade sale in two or three years time. The proposal would also see lenders receive the option to convert their debt into equity.
Discussions between lenders and the company are ongoing and have been as “constructive”.
Retail industry sources told SmartCompany this morning that it was still unclear which way Colorado’s lenders would lean, but warned any collapse would have big ramifications for landlords, coming so quickly on the heels of the collapse of book seller RedGroup Retail.
“This will put a lot of big landlords under pressure,” said one expert, pointing out that the company’s chains are spread over 430 stores.
SmartCompany will update on developments involving Colorado as they occur.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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