NEW YORK — Cherokee Inc., Sunland, Calif., has worked out an agreement with a noteholders committee to exchange $76 million in 11 percent notes for 89.9 percent of the stock in the reorganized company.
Cherokee plans to implement the deal through a prepackaged Chapter 11, marking its second trip to bankruptcy within the past two years. The firm emerged from Chapter 11 on June 1, 1993, but problems continued. In the year ended May 28, it lost $24.8 million on sales of $114.1 million. Under the previous Chapter 11, new notes replaced old ones, but Cherokee couldn’t meet a Nov. 1 cash payment on the new notes.
The new plan has been accepted by a committee representing a majority of outstanding notes. Besides stock for notes, all outstanding trade debt, about $7.5 million, will be exchanged for about 8.3 percent of the common of the reorganized firm. Existing stock will be diluted down to about 1.8 percent of the common.
Chief financial officer Cary Cooper said the reorganized firm will have about 5.4 million shares outstanding, with about 4.9 million shares held by bondholders. Long-term debt will drop to $19 million from about $100 million. The firm expects to emerge from Chapter 11 by yearend, he said. “When we emerge, the only debt we will have will be debt to [CIT Group/Business Credit] for working capital.”