Golf Town and Golfsmith Announce Strategic Transactions

AUSTIN, Texas, Sept. 14, 2016 /PRNewswire/ -- Golfsmith International Holdings LP (together with its subsidiaries, the "Company"), a specialty retailer of golf equipment, consumables, athletic apparel and accessories in North America, announced today that it has entered into a definitive asset purchase agreement for the sale (the "Golf Town Transaction") of the Canada-based business of Golf Town Canada Inc. (together with its subsidiaries, "Golf Town") to an entity (the "Purchaser") to be controlled by a purchaser group led by Fairfax Financial Holdings Limited ("Fairfax") and certain investment funds managed by Signature Global Asset Management, a division of CI Investments Inc. ("CI").  The Company also announced that it has entered into a support agreement (the "Support Agreement") with Fairfax and CI, which collectively, through funds or other entities managed or controlled by them, hold more than 40% of the Company's second lien secured notes due 2018 (the "Secured Notes") with respect to a recapitalization and restructuring transaction (the "Golfsmith Transaction") of the U.S.-based business of Golfsmith International Holdings, Inc. (together with its subsidiaries, "Golfsmith").  The Golf Town Transaction and the Golfsmith Transaction (collectively, the "Transactions") will benefit a broad range of stakeholders, provide the Golf Town and Golfsmith businesses with a sustainable capital structure and retail footprint moving forward, and provide stability for customers, suppliers, employees and other key stakeholders.

The Transactions are the result of a process undertaken by the Company to explore and advance operational and strategic alternatives to identify business enhancements, address its liquidity challenges, deleverage its balance sheet and position its business for future growth.  This process also included the pursuit of restructuring and recapitalization transactions through discussions with key stakeholders and a comprehensive sale process undertaken by the Company with the assistance of Jefferies LLC.  Following this process and a thorough exploration of all available options and alternatives, the board of directors of the Company determined that proceeding with the Transactions is in the best interests of the Company and will provide a broad overall solution for the Company for the benefit of its suppliers, employees, customers and other key stakeholders.

Pursuant to the definitive asset purchase agreement with respect to the Golf Town Transaction (the "Golf Town Purchase Agreement"), the Purchaser will acquire substantially all of the assets of the Golf Town business, including the acquisition of certain leases, inventory and working capital assets.  The Company intends to use the proceeds from the Golf Town Transaction to repay a substantial portion of the Company's first lien credit facility (the "Credit Facility") to reduce the Company's leverage and interest costs while the Company advances and implements the Golfsmith Transaction.  It is expected that the retail locations that are not acquired by the Purchaser in the Golf Town Transaction will be closed in an orderly manner.

Upon completion, the Golfsmith Transaction will result in a deleveraging of the Golfsmith business through the cancellation of the existing Secured Notes and the issuance of new second lien notes (the "New Secured Notes") and 100% of the equity in restructured Golfsmith to holders of the Company's existing Secured Notes.  The New Secured Notes will have a principal amount of approximately US$35 million, an extended maturity date, and an option for restructured Golfsmith to pay interest in kind rather than in cash.  The Golfsmith Transaction will also include a refinancing of the remaining portion of the Credit Facility following its paydown from the proceeds of the Golf Town Transaction and an operational restructuring of the Golfsmith business that will result in the closure of certain underperforming stores and the sale of excess inventory.

Pursuant to the Support Agreement, Fairfax and CI (together with other Secured Noteholders that enter into the Support Agreement, the "Supporting Noteholders") have agreed to support the Golf Town Transaction and to work with the Company to advance, support and implement the Golfsmith Transaction.  The Company will work with other Secured Noteholders to obtain their support for the Support Agreement and the Transactions.

To ensure the stability of the business and to protect value for the benefit of all stakeholders, the Company has determined that it is in the best interests of the Company and its stakeholders to implement the Transactions through court-supervised restructuring proceedings.  Earlier today, Golf Town commenced creditor protection proceedings under the Companies' Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice (Commercial List) (the "CCAA Court") and Golfsmith commenced a chapter 11 case under title 11 of the United States Code ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").  The CCAA and Chapter 11 proceedings will provide the appropriate forums for the completion of the Transactions, the rationalization of the Company's retail store network, and the completion of other restructuring activities in an orderly manner for the benefit of stakeholders.

The Company is currently working with its first lien lenders to finalize the terms of a US$135 million debtor-in-possession financing facility (the "DIP Facility") to provide funding to the business while the Company advances and implements the Transactions.  The DIP Facility is subject to approval by the CCAA Court and the Bankruptcy Court.  In connection with the DIP Facility, the Company will undertake a dual track sale process in the Chapter 11 proceedings to explore the potential for an alternative sale transaction for the Golfsmith Business that maximizes value for the benefit of stakeholders.  The Company intends to undertake this process concurrently with its efforts to advance the Golfsmith Transaction with the Supporting Noteholders and to take steps to refinance or repay the Credit Facility obligations in connection with the restructuring.

Completion of the Golf Town Transaction is subject to, among other things, approval of the Golf Town Transaction by the CCAA Court and the receipt of all necessary regulatory approvals.  The Golf Town Purchase Agreement provides for effective closing of the Golf Town Transaction on October 31, 2016.

Completion of the Golfsmith Transaction is subject to, among other things, finalization of definitive documentation, necessary Bankruptcy Court approvals, the refinancing of the Credit Facility on terms acceptable to the Company and the Supporting Noteholders, and the receipt of all necessary regulatory approvals.

"We believe that the Golf Town Transaction and the Golfsmith Transaction provide an overall going concern solution for the Company's operations and will provide Golf Town with a streamlined sustainable retail footprint and Golfsmith with an improved capital structure.  Completion of the transactions will position Golf Town and Golfsmith to continue to generate value for the benefit of stakeholders," said David Roussy, Chief Executive Officer of the Company.  "Today represents a significant step forward for the long term-viability of the Golf Town and Golfsmith businesses.  We will continue in our commitment to provide our customers with the exceptional service and high-quality golf products they have come to expect from us."

"David Roussy and the entire team have done a tremendous job preserving value for stakeholders through this transition and putting together the Golf Town and Golfsmith Transactions," said Paul Rivett, President of Fairfax. "We look forward to working with David and his team along with its employees and stakeholders."

Golf Town and Golfsmith operations will continue uninterrupted during the CCAA and Chapter 11 proceedings, and obligations to suppliers for goods and services provided to the Company following the initiation of the CCAA and Chapter 11 proceedings will continue to be met.  The commencement of CCAA and Chapter 11 proceedings will enable the Company to continue normal course operations for the benefit of its stakeholders pending the completion of the Transactions.

About Golfsmith and Golf Town

The Company, headquartered in Austin, Texas, is the largest specialty golf retailer in the world. The Company has 109 stores in the United States operating under the Golfsmith banner and 55 stores in Canada operating under the Golf Town banner.  The Company also offers convenient, 24/7 shopping at www.golfsmith.com and www.golftown.com. The Company features the broadest selection of the best brands in golf, expert staff who share its customers' love of the game, and state-of-the-art custom fitting services and technology – truly Anything For Golf.

About Fairfax

Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.

About CI and Signature Global Asset Management

Signature Global Asset Management, a division of CI Investments Inc., manages over $50 billion in core equity, balanced and income-oriented portfolios and has offices in Toronto and Hong Kong. CI is one of Canada's largest investment fund companies, managing approximately $110 billion (as of August 31, 2016) on behalf of two million Canadian investors. CI is a subsidiary of CI Financial Corp., a diversified wealth management firm listed on the Toronto Stock Exchange (symbol: CIX).

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of applicable Canadian and United States securities legislation. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "intend," or similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of future store openings, store retrofits and capital expenditures, the likelihood of our success in expanding our business, financing plans, working capital needs and sources of liquidity. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information.  These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. We believe our forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

SOURCE Golfsmith International Holdings LP