Colorado Group collapses with $440 million in debt

Retail giant Colorado Group has lost its battle to escape from under its $440 million of debt, with a syndicate of 12 lenders rejecting a last-ditch attempt to restructure this morning.

Administrators from accounting firm Deloitte will be appointed this morning to the group, which owns iconic Australian brands Jag, Mathers, Diana Ferrari, Williams the Shoeman and Colorado.

This is likely to trigger the appointment of receivers – most likely from high-profile insolvency firm Ferrier Hodgson – by the syndicate of lenders.

Lenders met last week to discuss options for the stricken company which has been hit hard the difficult retail environment.

The company’s owners, Hong Kong-based private equity firm Affinity Equity Partners, were pushing a proposal that would have seen the group dodge the insolvency process 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.

However, this was rejected by a group of lenders that had clearly lost patience.

“The Colorado Group board are 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 this morning.

“The position of the lenders now leaves the board with no alternative other than to appoint voluntary administrators. It is likely that the lenders will appoint receivers in response to the company’s appointment of administrators.”

The collapse of the company is likely to leave Affinity Equity Partners and the lenders with some large losses.

Affinity bought Colorado Group for $430 million in 2006, when the retail market was running hot and debt was particularly cheap.

However, conditions have deteriorated sharply in recent years. According to a report in Inside Retailing Online last week, 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.

However, the board said this morning 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 future of Colorado’s 430 stores and its thousands of staff remains very much in the balance.

Analysis by the syndicate of lenders suggested a sale of the business would reap just $83-130 million, although retail veteran Solomon Lew is expected to be interested in buying some brands.