CHEROKEE INC. (NASDAQ:CHKE) Files An 8-K Entry into a Material Definitive AgreementItem 9.01Entry into a Material Definitive Agreement.
Amendment to Cerberus Credit Facility
On November 10, 2017, Cherokee Inc. (the“Company”) entered into an amendment (the “Cerberus Amendment”) of its senior secured credit facility (the“Cerberus Credit Facility”) with Cerberus Business Finance, LLC (“Cerberus”).The Amendment includes a waiver of all defaults under the Cerberus Credit Facility arising from the Company’s failure to comply with financial covenants thereunder for the periods ended on or prior to July 29, 2017. As of July29, 2017, the Company had approximately $48.8 million in principal amount of outstanding indebtedness owed under the Cerberus Credit Facility, all of which is due in December 2021.
to the Cerberus Amendment, the Cerberus Credit Facility bears interest at a rate per annum equal to either the rate of interest publicly announced from time to time by JPMorgan in New York, New York as its reference rate, base rate or prime rate or LIBOR plus, in each case, the amended applicable margin and subject to the applicable rate floor. As amended, the "Applicable Margin" shall be at Pricing Level 1 set forth in the table below until the delivery of the required financial statements and certificates to Cerberus in respect of the fiscal quarter ending April 30, 2018.Thereafter, the Applicable Margin will be subject to adjustment based upon the leverage ratio as set forth below at the end of each fiscal quarter while the Cerberus Credit Facility remains in effect.
|
Pricing Level |
LeverageRatio |
ReferenceRateLoans |
LIBORRateLoans |
||
|
1 |
≥ 5.00:1.00 |
7.00 |
% |
9.50 |
% |
|
2 |
< 5.00:1.00 ≥3.00:1.00 |
6.50 |
% |
9.00 |
% |
|
3 |
< 3.00:1.00 |
6.00 |
% |
8.50 |
% |
Certain covenants requiring the Company to satisfy specified financial ratios begin to apply with respect to the fiscal quarter ending April 30, 2018. The new required Consolidated EBITDA thresholds have been set to negative $800,000 to $800,000 for the fiscal quarter ending April 30, 2018, $1.0 million to $3.4 million for the two fiscal quarters ending July 31, 2018 and $4.7 million to $8.1 million for the three fiscal quarters ending October31, 2018. In addition, (i) the required leverage ratio (as defined and calculated in the Cerberus Credit Facility) has been amended to 4.75 to 1.00 for the four consecutive fiscal quarters ending on or aboutJanuary 31, 2019, 4.65 to 1.00 for the four consecutive fiscal quarters ending on or aboutApril 30, 2019, and decreasing ratios for each period of four consecutive fiscal quarters ending thereafter as set forth therein; (ii)the required fixed charge coverage ratio (as defined and calculated in the Cerberus Credit Facility) has been amended to 1.20 to 1.00 for any period of four consecutive fiscal quarters ending on or about January 31, 2019 and thereafter; (iii); the new liquidity covenant requires the Company to maintain an amount of unrestricted cash on-hand, together with the availability under the revolving credit facility under the Cerberus Credit Facility, of no less than $2.0 million at all times; and (iv)the parties agreed to certain additional administrative amendments. The Company must also utilize extraordinary receipts of funds to reduce the principal due under the Cerberus Credit Facility, subject to certain thresholds and limitations.
The Cerberus Amendment also provides, as a condition to the effectiveness of the Cerberus Amendment, that investors purchase participations from lenders under the Cerberus Credit Facility of no less than $11.5 million on or before December 8, 2017.In connection with the purchase of participation interests in the Cerberus Credit Facility, the Cerberus Amendment permits the Company to repay the unsecured receivables funding loan due to Jess Ravich, a member of the Board of Directors, by application of proceeds from a participation in the Cerberus Credit Facility by Mr. Ravich in an amount equal to the currently outstanding principal and interest under such loan.
Further, the Cerberus Amendment eliminates the requirement that, under certain circumstances, the Company exercise its rights to call the equity commitment rights under certain Common Stock Purchase Agreements dated August 11, 2017.As a result, upon the effectiveness of the Cerberus Amendment, such commitments are expected to be no longer in effect, and none of the Company, the lenders under the Cerberus 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.