Debt-Burdened Cherokee May File for Bankruptcy

Cherokee Inc., struggling under a heavy debt load, said it might be forced to seek protection under the bankruptcy laws.

In a filing with the Securities and Exchange Commission, the Sunland-based maker of casual apparel and shoes said it is negotiating with holders of its $105 million of senior subordinated notes to restructure the debt. Cherokee is currently paying 15.5% interest on the debt.

In the meantime, Cherokee said it is evaluating whether to make an $8.2-million interest payment on the notes due Nov. 1. If the payment is missed without the consent of the note holders, it could result in the bankruptcy filing, the company said.

Cherokee also reported a fiscal first-quarter loss of $4.28 million, compared with year-earlier profit of $64,000, on a 24% drop in sales, to $41 million from $53.8 million.

The company suffered the loss largely because of interest payments on its debt, which overall totals about $163 million and was incurred because of an investor group’s leveraged buyout of the company in 1989.

But Cherokee also is suffering from the weak economy and its effect on retail sales. Cherokee’s first-quarter earnings, before the debt interest and taxes, plunged 85% from a year earlier to $1.1 million from $7.5 million.