Cherokee Plans to Enter 2nd Bankruptcy Filing

Cherokee Inc. announced its plan to enter a prepackaged bankruptcy reorganization by the end of the year. It would be the second Chapter 11 filing for the debt-plagued Sunland apparel maker.

Last week, the company said that a key element of the plan was in place, with the agreement by a bondholders committee to swap long-term debt for common stock. Under the plan, all of the company’s 11% senior subordinated notes due in 1999 would be swapped for about 89.9% of the common stock of the reorganized Cherokee. In addition, all outstanding trade debt would be exchanged for about 8.3% of the common stock of the reorganized company. Existing Cherokee stock would be converted to about 1.8% of the common stock of the post-bankruptcy company.

Cherokee said the plan would reduce its long-term debt from about $100 million to about $19 million.

CIT Group/Business Credit, Inc., has agreed to provide Cherokee with “debtor-in-possession” financing during the Chapter 11 proceedings, Cherokee said.

Burdened by debt from a 1989 leveraged buyout, Cherokee entered and emerged from another prepackaged bankruptcy last year. In the fiscal year ended May 28, it lost $24.8 million on $114.1 million in sales. The company has lately been streamlining its apparel selection to focus on casual clothes.