Quiksilver Inc. said it reached an agreement with the private equity firm Rhone to exchange $75 million of the outstanding principal amount of its senior secured term loans for about 16.7 million shares of its common stock at an exchange price of $4.50 a share.
Under the terms of the parties’ agreement, Quiksilver has an option, for a 60-day period following the execution of a definitive agreement, to require Rhone to exchange up to another $65 million of the remaining outstanding principal amount of the loans for additional shares at the same price per share.
The proposed transaction could reduce Quiksilver’s debt by $140 million. Quiksilver said it intends to pursue alternative equity or equity-related financing during the option period, with the proceeds to be used to repay the senior loans.
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Quiksilver said the proposed transaction would be accretive to the company’s earnings. Rhone owns warrants to acquire 16.2 percent of the outstanding shares of Quiksilver’s common stock. The initial $75 million debt-for-equity exchange would give Rhone 24.2 percent of Quiksilver’s outstanding shares, including shares issuable upon exercise of the warrants. If Quiksilver exercises the options in full, Rhone would own 30 percent of the firm, including shares from the exercise of the warrants.
Brian Sozzi of Wall Street Strategies Inc., who has a “sell” rating on the stock, said in a research note that the “agreement demonstrates a vote of confidence by Rhone in Quiksilver’s long-term outlook.” He termed the deal a win for Quiksilver, too, but pointed out the potential for share dilution exists if Quiksilver did pursue alternative equity or equity-related financing during the option period with an entity other than Rhone.
Shares of Quiksilver ended the day at $4.84, up 37 cents, or 8.3 percent. In the past year, they have been as high as $6.09 and as low as $1.49. The firm has struggled with its finances since acquiring and later selling the Rossignol ski brand.