Colorado Group: a $430m boom-time buyout ended with the banks taking the shoe chain

In 2006, at the height of the private equity boom when debt was cheap and freely available, Hong Kong-based Affinity Equity Partners bought Colorado Group — owner of Colorado, Mathers, Williams the Shoemen, JAG and Diana Ferrari, and billing itself Australia's largest specialty retailer with about 440 shops — for A$430 million. The deal was funded in that same cheap debt, and the group still owed roughly $440 million to a syndicate of 12 lenders five years later, against annual revenue of $462.5 million.

The trading position decayed through 2009-10: a reported $62.7 million annual loss driven by impairments, and a soft Christmas in 2010. In March 2011 the board, advised by KPMG, offered the lenders a restructuring that would have swapped debt for equity and kept the group trading. The syndicate rejected it — the board said the proposals 'were not supported by the requisite number of lenders' — leaving it 'no alternative' but voluntary administration. Deloitte was appointed by the board; within hours the secured creditors, owed over $400 million, installed Ferrier Hodgson as receivers.

Receiver James Stewart found the portfolio split cleanly: Mathers and Williams were Australia's largest specialty footwear brands and JAG and Diana Ferrari were sound businesses, but the namesake Colorado stores were the weak link. Lender analysis put the whole group's value as a going concern at just $83-130 million, and Solomon Lew circled the profitable brands at the right price.

Receivers closed 139 stores, hitting 955 staff; $400m+ owed against a going-concern value of $83-130m; Affinity's equity wiped out

The 2006 buyout was priced at the top of the market and funded with boom-cheap debt, leaving no equity cushion when Australian retail turned.

The debt never came down: about $440 million was still owed five years later, nearly equal to a full year of revenue, with goodwill impairments wiping reported profits.

The rescue plan came too late and needed unanimous-enough lender consent — twelve banks with different exposures could not agree, so the whole group tipped into receivership.

The brand the company was named for was its worst business: receivers closed 101 of the 139 shuttered stores under the Colorado name, while the footwear chains paid the bills.

A buyout priced at the top of the cycle works only if the debt is repaid while the sun shines. Colorado carried boom leverage into a retail winter, and the lenders decided who kept the brands.

Ferrier Hodgson closed 139 stores, affecting 955 staff. In September 2011 the main secured creditors — National Australia Bank, Nomura, Anchorage Capital Partners and Ice Canyon — took over the healthy brands as Fusion Retail Brands, operating 282 stores with 2,200 employees. The Colorado name itself was reborn in late 2012 as a footwear-only label sold through Mathers, Williams and Myer, led by Fusion chief executive Don Grover. Affinity Equity Partners' investment was a total loss, and the collapse came a month after REDgroup, another PE-owned retailer, fell into administration.