Cherokee Global Brands has improved its financial flexibility through the completion of a new $40 million three-year term loan that is secured by the company’s intellectual property assets.
Cherokee will use the proceeds from the loan to refinance its existing debt and increase liquidity. The firm’s IP assets backing the term loan include the Cherokee, Hi-Tec, Magnum, Tony Hawk, Sideout and Liz Lange brands.
In connection with the refinancing through Gordon Brothers and Gordon Brothers Finance Co., the holders of the junior participation interest in Cherokee’s former credit facility have increased their subordinated interests to $13.5 million from $2 million, and Cherokee has increased its long-term debt to $53.5 million from $45.2 million. The company said the transaction, after discounts and issuance costs, has increased the firm’s overall liquidity by $5.5 million. Further, the company has issued warrants to the senior and junior lenders, allowing them to purchase 2.8 million shares of common stock at an average exercise price of 48 cents a share.
Henry Stupp, chief executive officer of Cherokee, said, “Since the start of fiscal 2019, we have hit several benchmarks, including strengthening our management team, successfully refining our operations and divesting non-royalty businesses.”
Stupp said the more focused and efficient infrastructure will enable the company to realize the full potential of its brands’ opportunities.
Larry Klaff, senior managing director of Gordon Brothers Finance Co., said Cherokee is in a “better position to evolve the model further as a result of this refinancing.”
Ramez Toubassy, president of Gordon Brothers’ brands division, said, “We have a strong conviction in the value of the company’s brand portfolio, the effectiveness of their uniquely hands-on approach to building value and their prospects for future growth.”
While the initial partnering between Cherokee and Gordon Brothers was connected to the firm’s new credit facility, sources believe there’s room for closer collaboration between the two in the months ahead.
One individual said Cherokee made a strategic move to go with a non-bank lender as a partner because the financial group, if it chooses to do so, has the capital to invest with Cherokee on deals going forward.