Cherokee Global Brands announced the amendment, subject to the satisfaction of certain conditions, of its senior secured credit facility to resolve a non-compliance situation with its financial covenants.
On September 8, Cherokee indicated that as of July 29, the company was not in compliance with certain financial covenants set forth in the Cerberus credit facility, namely the leverage ratio and the fixed charge coverage ratio. The company said it was in discussions with Cerberus to obtain a waiver.
“We are pleased to announce the amendment of our credit facility with our lenders, whom we thank for their collaborative approach throughout the amendment process,” commented Henry Stupp, chief executive officer of Cherokee Global Brands. “The amendment revises the financial covenants materially to enable the company to focus on growing the business for the long term. Importantly, as part of the amendment, we have eliminated the liquidity call which could have potentially resulted in the issuance of approximately $5.5 million in additional common stock. The amendment of our credit facility is a very positive development for the company and important to stabilizing our balance sheet, sustaining liquidity and better positioning us for profitable future growth.”
Stupp continued, “Over the last several months, we’ve taken several actions to focus on our core business fundamentals and high-growth brand opportunities During this time, we have made efforts to strengthen our team while addressing our financial solvency. As a result, we are focused on reducing operating expenses and improving cash flow. We’re comfortable with our financial position and confident in our ability to meet our existing obligations.”
The Amendment, among other things, eliminates the requirement that the company, under certain circumstances, exercise its rights to call the equity commitment rights under certain common stock purchase agreements dated August 11, 2017.
Upon the effectiveness of the Amendment, such commitments are expected to no longer be in effect, and none of the company, the lenders under the senior secured credit facility or the investors under such agreements would have the right to require the investors to purchase the company’s common stock under such agreements. As a result, the special meeting of stockholders that had been called for November 28, 2017 to approve such issuances is expected to be cancelled. The Amendment also provides, as a condition to the effectiveness of the Amendment, that investors purchase participations from the lenders under the senior secured credit facility in an aggregate amount of no less than $11.5 million on or before December 8, 2017.
The company is in advanced discussions with investors who have indicated an interest in purchasing such participation interests and anticipates that it will announce a completion of that investment on or before December 8, 2017. Additional information and a full copy of the amendment are included in the company’s Form 8-K filed today with the Securities and Exchange Commission.
Cherokee is a global brand marketing platform that manages a growing portfolio of fashion and lifestyle brands including Cherokee, Carole Little, Tony Hawk Signature Apparel and Hawk Brands, Liz Lange, Everyday California, Sideout, Hi-Tec, Magnum, 50 Peaks, Interceptor and Flip Flop Shops, a franchise retail chain.
Photo courtesy Hi-Tec
