UPDATE 2-Sporting goods maker Head seals debt deal

* Head secures backing of bond holders for debt deal

* CEO Eliasch provides liquidity line-source

* Distressed debt investor Octavian confirmed on board

(Adds background, detail)

By Tom Freke

LONDON, Aug 14 (Reuters) - Sporting goods manufacturer Head NV (HD3.VI) struck a crucial bond deal on Friday, allowing the group to slash its debt levels and cementing hedge fund Octavian Advisors' position on its board.

Investors supported an exchange which reduces debt levels at the Austrian maker of skis and tennis racquets by almost 40 million euros ($57.1 million) and which offers them a mixture of new bonds and shares.

"The company was over-leveraged and its performance depends on the economy and snow conditions, making it a difficult credit," said one credit analyst, asking not to be named.

Head said 85.7 million euros of its 135 million euro high-yield bond had been tendered, which would be exchanged into about 43.7 million euros of new secured notes and 22.5 million ordinary shares in the group.

The success of Head's exchange comes days after Germany's Escada failed to secure the support of bondholders for a similar exchange, forcing it to file for insolvency. [ID:nLD499251]

The deal solidifies the position of Octavian Advisors, a distressed debt fund with a major holding in Head's bonds, which now sits on the company's board.

Head's Swedish chief executive and major shareholder Johan Eliasch will provide the company with a 10 million euro ($14.3 million) liquidity line as part of the deal, a source with knowledge of the situation said.

The environmental campaigner and film backer's credit line will allows Head to build up stocks ahead of the European winter season, the source said.

In July Head said it would require additional liquidity of 10 million euros to see it through the third and fourth quarters of the year.

The exchange deal, organised by Merrill Lynch, cuts the company's annual interest payments by about 3 million euros and its leverage ratio (net debt to earnings before interest, depreciation, taxes and amortisation) from about 8.5 times to 6 times, said the analyst.

First announced in April, the bond exchange was repeatedly extended as the company negotiated terms with bond holders. On July 30 the company sweetened the terms of the exchange, offering its lenders more bonds as well as shares.

Head's second-quarter results are due on Aug. 21. (Editing by David Holmes) ($1=.7008 Euro)