DONNKENNY GETS WAIVERS ON DEFAULTS IN REVOLVING CREDIT, BUT MAXIMUM CUT
NEW YORK — Donnkenny Inc., which has been the target of a number of shareholder suits, has been granted waivers through Feb. 27 on defaults of its revolving credit agreement, but the maximum credit has been cut to $43 million from $60 million, and the interest charge has been raised 1 percent.
Also, the waiver agreement provides for the maximum to be reduced in steps so that by Feb. 20, the maximum will be down to $31 million, according to Donnkenny’s 10-Q report filed with the Securities and Exchange Commission.
Shareholder suits filed against the company and some of its executives, including Richard Rubin, president, charge insider trading by the officers and the reporting of misleading financial information.
Donnkenny stock closed unchanged Tuesday at 4 1/16 in over-the-counter trading. It has been as high as 21 3/8 in the past 12 months.
The defaults involved relate to requirements that the firm provide timely and accurate information. The company has admitted that there were some accounting discrepancies in reporting the proper quarters in which income was booked.
The company also violated leverage restrictions as the result of the September acquisition of Fashion Avenue.
The SEC filing cautions that if at the end of the waiver period, the company is unable to obtain a further waiver, the banks could declare the entire loan due and payable, “which could have a material adverse effect on the company.”
Banks in the lending group are Chase Manhattan, Bank of New York and Fleet Bank.
In the nine months to Sept. 30, Donnkenny used $16.3 million more cash than was generated from operating activities principally because of an increase in inventory and receivables.
Another $6.1 million in cash was used in the Fashion Avenue acquisition. On Sept. 30, Donnkenny had cash of $734,000, down from $5.5 million at the beginning of the year. Inventory at the end of nine months was listed at $66.3 million, compared with $48 million on Dec. 2, 1995.
The company said it believes the funds available under the revolving credit will be sufficient to offset any negative cash flows and provide the firm with enough money for its needs through Feb. 27. It also said it believes that at the end of the period, it will be able to extend the credit facility or obtain financing from other sources.
For the third quarter, the company reported earnings of $4.6 million, or 33 cents a share, on sales of $86.6 million.