Second Australian private equity-owned firm falls to creditors

Australian clothing and footwear retailer Colorado Group surrendered control of the business to its lenders on Wednesday, the second private-equity-owned store chain to do so in Australia in as many months.

Colorado's lenders, including Mizuho Corporate Bank , National Australia Bank and several hedge funds, are owed about A$400 million ($411.5 million).

A string of interest rate hikes last year interrupted a tentative consumer recovery, forcing Australian retailers to resort to discounts to revive sales.

The environment has been particularly harsh for some private equity owners that bought at the peak of the buyout boom in 2006 and 2007 and employed high levels of gearing. Two retailers -- Colorado and REDgroup Retail, which owned the Borders and Angus & Robertson chains -- have now been forced into the hands of lenders, while others have shelved IPO plans.

"Despite extensive efforts by the board and management to facilitate an orderly restructure of the business, the position of the lenders now leaves the board with no alternative other than to appoint voluntary administrators," the Colorado board said in a statement.

Colorado, bought by Affinity Equity Partners in 2006 for A$430 million has about 430 stores in Australia and New Zealand with brands including Colorado, Williams and JAG.

Ferrier Hodgson, a specialist restructuring company, said in a statement it has been appointed as receivers and managers for Colorado and the appointment was made "by the syndicate of secured creditors owed $400 million." Under receivership, the stores can continue trading under the control of creditors.

Sources in Australia's A$22 billion private equity industry say other private equity-owned retail groups also face a tough trading climate.

The Rebel Sports chain, owned by Archer Capital, had planned an IPO last year, but shelved plans as retail conditions deteriorated, and cinema chain Hoyts, owned by Pacific Equity Partners, told Reuters earlier this month it also postponed an IPO or sale.

"If you don't have either a must-have brand which is a leader in its category, or the lowest price point, you will struggle. And where you have big debt loads -- they can't be serviced," said one private-equity industry source who asked not to be named because of company restrictions on speaking to the media.

Other smaller private-equity owned retail firms that have been looking for a buyer in recent months include Bras n Things, clothing chain Witchery and vacuum cleaner retailer Godfreys. 

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