Pac Brands 'like Feltex rerun'

Concerns have been raised about the future of the remaining jobs at struggling clothing manufacturer Pacific Brands, which this week cut 89 jobs in New Zealand and shed almost 2000 in Australia last week.

Pacific Brands said it would be cease manufacturing clothing in Australia and New Zealand, moving production overseas. About 400 jobs remain in New Zealand.

National Distribution Union head Robert Reid said the company story read like a re-run of the failure of Feltex.

Shares in Feltex were sold to mainly retail investors in 2004 after several years of private equity ownership. The heavily indebted carpet company was placed in receivership in 2006 by the ANZ.

Pacific Brands - which can trace its origins back to 1893 with the manufacture of Dunlop tyres - was purchased in 2001 by private equity firms CVC Asia and Catalyst.

Now producing a suite of brands including Berlei, Bonds, Sleepmaker, Sheridan and Hush Puppies, it was re-listed in Australia and New Zealand in 2004 and valued at A$1.26 billion ($1.6 billion), nearly double the A$730 million paid three years earlier.

Investors stumped up A$2.50 at issue for shares which were worth A14.5c on the ASX yesterday, giving the company a market cap of just A$72.8 million.

Pacific Brands, which had A$550 million of debt due in February 2010, has had A$330 million extended until August 2010. A further tranche of A$165 million will be paid down by that date.

The Australian newspaper said the fact the company's bankers had increased interest charges and only agreed to a six-month extension on A$550 million in debt showed they had lost patience and were forcing the major restructure.

The company, which has cash on hand of A$95.8 million, reported a cash outflow of A$19 million for the six months ended December as it built up inventory levels ahead of Christmas and customers took longer to pay.

Merrill Lynch analyst David Errington said it appeared as if the company had too much debt on the balance sheet, the banks had panicked and forced the company to take dramatic action and cut the business to ribbons.

Chief financial officer Stephen Tierney last week downplayed suggestion that the banks would have given the company more generous debt facilities if the turnaround strategy was going to be sufficient.

Tierney said the company had made a commitment to execute its strategy quickly and that its debt requirements would be different on completion of the manufacturing cuts.

He said the asset sales would also help contribute to debt repayments.

The union has requested Pacific Brands place any redundancy money that would be paid to New Zealand workers in event of a company failure - estimated to be around $1 million - in a trust fund.

Reid said in the short term there may be a boost to staff numbers at the company's distribution centre in Auckland as a result of dealing with more stock coming from overseas.

Game plan
* Pacific Brands last week announced a plan to turn around its fortunes by the end of 2010.
* The strategy includes closing manufacturing in Australia and New Zealand.
* The company also plans asset sales and cuts to non-performing brands.
* More than 2000 jobs on both sides of the Tasman will be lost.

- ADDITIONAL REPORTING BLOOMBERG