NEW YORK (Reuters) – U.S. intimate apparel retailer Frederick’s of Hollywood Group Inc (FOH.A) on Tuesday said it reached a deal with a key lender to exchange $22.6 million of debt and preferred stock for common shares, helping to cut its debt load substantially.
Shares of Frederick’s closed up more than 14 percent at $1.36 on the American Stock Exchange.
The company, which runs 132 stores nationwide, said it had reached a deal with investor Fursa Alternative Strategies LLC to exchange the debt and preferred shares at a 50 percent discount, for $11.3 million in common stock.
“This is the single biggest step we’ve made in what’s been a pretty aggressive turnaround we started about 12 months ago,” said Thomas Lynch, the company’s chairman and chief executive officer.
“We really see this as the turning point for us.”
Lynch said the retailer has cut about $20 million in annual costs and made strategic decisions to expand into licensing its brand and doing some international and wholesale expansion as part of a turnaround plan.
Under the debt exchange deal, the company said it will also issue Fursa three, five and seven-year warrants for 500,000 shares of common stock, giving the investor the ability to possibly control another 1.5 million shares of the company.
All shares issued to Fursa will be subject to a 12-month lock-up agreement.
The deal leaves the company, which traces its roots to an original flagship lingerie store in Hollywood, without any long-term debt and has reduced its debt substantially. The company only carries a revolving credit facility now, Lynch said.
“We’ve been looking to do an equity raise and this certainly makes us more attractive going into those discussions,” Lynch said.
Lynch said the deal would be expected to close at the end of March, subject to shareholder approval and other customary closing conditions.
“By removing the added pressures that the debt and preferred stock place on the company, Frederick’s of Hollywood will be able to concentrate more of its resources on its business and provide a stronger foundation for long-term growth,” William Harley, Fursa’s chief investment officer, said in a statement.
(Reporting by Emily Chasan; Editing by Phil Berlowitz, Bernard Orr