Clothier aims to junk debt by selling stock: once-spurned Cherokee will again try market on for size.Clothier aims to junk debt by selling stock If at first you don't succeed, try again, but maybe on a smaller scale. That could be the motto at Cherokee Group Inc., the successful Sunland-based apparel manufacturer, which for the second time in less than a year has filed plans to sell stock to help pay off onerous junk bonds. Cherokee, formerly a publicly held company, went private in a management-led buyout in early 1989, a transaction financed in part by a $117.5 million junk-bond offering - underwritten by Drexel Burnham Lambert Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was driven into bankruptcy in the 1980s by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. , the now-defunct brokerage house. Total buyout price of Cherokee, which sells it clothes in 11,000 stores nationwide, was $168 million, and majority company ownership was transferred to partnerships made up of Drexel employees. A Westside merchant banker, Jeffrey Deutschman, 34, took a stake, as did senior members of Cherokee management, including Robert Margolis, 42, president and chief executive, Jay Kester, 45, president of apparel, and Cary Cooper Cary Cooper CBE is an American psychologist and Professor of Organisational Psychology and Health at Lancaster University Management School. Prior to working at Lancaster University, Cooper was Head of the Manchester School of Management (UMIST) from the early 80s, In 1995 , 48, chief financial officer. Last summer, the $208.6 million-in-sales Cherokee tried to issue up to $48 million of nearly voteless stock, also intended to pay down the junk debt. But the stock market snubbed the offering, either on its merits or because the Persian Gulf War Persian Gulf War or Gulf War (1990–91) International conflict triggered by Iraq's invasion of Kuwait in August 1990. Though justified by Iraqi leader Saddam Hussein on grounds that Kuwait was historically part of Iraq, the invasion was presumed to be was heating up, and it was withdrawn. This time around, Cherokee plans to issue only $17.5 million to $25.9 million worth of stock, which will have full voting rights Voting rights The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors. voting rights The type of voting and the amount of control held by the owners of a class of stock. . The new stock - if the market snaps it up - will trade under the symbol CHKE in the over-the-counter markets, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. papers filed with the Securities and Exchange Commission. Lead underwriter Lead underwriter The head of a syndicate of financial firms that are sponsoring an initial public offering of securities or a secondary offering of securities. Could also apply to bond issues. on the Cherokee offering is brokerage house PaineWebber, led by Managing Director Pat Graham Pat Graham is an American photographer specializing in indie-punk bands, with whom he often tours. Graham began shooting in high school in Milwaukee, WI, but soon relocated to Washington DC where he worked extensively in and around the local and national music scenes for in the firm's downtown Los Angeles Downtown Los Angeles is the central business district of Los Angeles, California, located close to the geographic center of the metropolitan area. The sprawling, multi-centered megacity is such that its downtown core is often considered just another district like Hollywood or offices. First Boston First Boston Corporation was a New York-based investment bank, founded in 1932 and acquired by Credit Suisse in 1988, when it became 'CS First Boston'. Globally referred to as Credit Suisse First Boston after 1996, the First Boston part of the name was phased out in 2006. Corp. and Donaldson, Lufkin & Jenrette are co-managers of the offering. Company officers last week could not comment on the offering, due to SEC "quiet period" regulations. However, in a brief telephone interview, Cooper, chief financial officer, said the offering would help "wipe out" the company's $165 million worth of outstanding long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. , which includes the Drexel-issued junk bonds. Stock market denizens last week said the market is becoming more receptive to equity offerings, including those in which proceeds are to be used to pay down debt. "The market is allowing it. Clearly the signs are favorable for this kind of debt-equity exchange," said Fred Roberts, president of F.M. Roberts & Co., a Westside investment banking shop. Cherokee could use some relief from debt: On $176.8 million in revenues, the company earned $2.92 million in the nine-month period ended March 2 - but paid out $18.8 million in interest. Cherokee, which manufactures more than 90 percent of its product in the United States - and most of that in Los Angeles - was founded in 1973 by James P. Argyropoulos, former chairman and chief executive. The company first issued stock in 1983 and was financially successful. In 1988, after a bitter fight, founder Argyropoulos left Cherokee, and the company was taken private by Drexel, merchant banker Deutschman, and the senior members of management Margolis, Kester and Cooper. Since then the company has boosted sales and operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before , even in the face of a recession. Company managers have been rewarded for their efforts: Margolis earned $400,000 and a $1.2 million bonus in fiscal 1990, while Kester took in $1.1 million in total compensation and Cooper $513,575. Merchant banker Deutschman, through his outfit DCC (1) (Direct Cable Connection) A Windows 95/98 feature that allows PCs to be cabled together for data transfer. DCC actually sets up a network connection between the two machines. , will earn management fees of $750,000, and additional expenses, in fiscal 1991 from Cherokee. In Los Angeles' garment district, Cherokee is noted for its close connection to 50 to 70 Korean-American contractors, and has helped finance a Korean-American Garment Industry Association dinner. Large manufacturers, such as Cherokee, often use teams of subcontractors to actually have clothes cut and sewn. About 90 percent of Cherokee clothes are sewn by sub-contractors. Local labor officials have accused Cherokee of resorting to the lowest-wage sub-contractors following the company's loading up on junk debt, but company officials have asserted they use only licensed contractors who are supposed to conform with existing labor laws. Table : Cherokee Group Fiscal Net Net Year Sales Income 1991 (9 months) $176.8 $2.94 1990 208.6 2.26 1989 169.4 (9.73) Note: Figures in millions Source: Cherokee Group |
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