Lululemon founder Chip Wilson pledges stock for US$500 million in loans

[VANCOUVER] Lululemon Athletica founder Chip Wilson pledged shares in return for cash for the third time in just over a year, freeing the billionaire to spend on other matters and maintain his voting influence over the yogawear-maker he founded nearly three decades ago.

Wilson now has access to more than US$500 million from different banks without having to sell stock.

Last week, Royal Bank of Canada (RBC) agreed to lend Wilson as much as US$315 million, partly backed by Lululemon shares, according to an Aug 11 regulatory filing. That deal followed an arrangement with Citigroup, signed in January, in which the bank committed to advance the billionaire about 330,000 Lululemon shares’ worth of money – roughly US$122 million at the time – and let him settle the debt either in shares or cash. And last year Goldman Sachs Group agreed to lend him up to US$200 million backed by Lululemon stock.

Filings disclosing Wilson’s arrangements do not reveal whether he has taken advantage of the loans, or how he plans to spend the cash. Wilson did not respond to a request for comment.

Super-rich around the world often put up publicly traded equity or other assets as security for loans. They can be tailored to the person’s needs, and the interest cost on the loan is likely to be much lower than the capital gains tax bill they would face if they sold shares instead.

Wilson’s deals will also allow him to benefit from any potential share price rebound. Lululemon’s stock surged during the pandemic, but has tumbled more than 40 per cent so far this year. Lately, the athletic wear firm has faced slowing sales and fewer store visitors. The billionaire stepped back from day-to-day management of Lululemon more than a decade ago.

The 70-year-old suffers from a form of muscular dystrophy for which there’s no cure. He has said that he’d spend US$100 million on research and has put himself through experimental therapy to slow the progression of the disease.

The very rich, motivated not by money but by survival, can create more effective funding and research organisations than the ones that currently exist, Wilson told Bloomberg Businessweek in 2023. He has a US$7.9 billion fortune, according to the Bloomberg Billionaires Index.

Each of the three arrangements are structured differently.

The margin loan from Goldman is backed solely by Lululemon shares, while the loan from RBC is secured with both Lululemon stock and other unspecified collateral.

The Citigroup deal is a bit more intricate. Wilson can use it to sell shares to the bank outright. But he can also choose to collect the loan balance and repay it 18 months later, using either cash or shares, and there are certain terms allowing him to capture potential share price gains over that period.

In the regulatory filings detailing the arrangements with RBC and Citigroup, Wilson also disclosed that he’d terminated two old share-backed loans that together gave him access to more than US$100 million. BLOOMBERG