Maui & Sons, Major Creditor in Agreement : Irvine Surf-Wear Firm to Emerge From Chapter 11

Maui & Sons, the Irvine surf-wear maker, has reached an agreement with its major creditor to reorganize its debts and emerge from bankruptcy proceedings.

The agreement with Mitsui Manufacturers Bank in Los Angeles, Maui’s major secured creditor, calls on the company to agree with other companies to manufacture and distribute its products under license and to sell its current inventory of clothes by Dec. 15.

The agreement will be presented to other company creditors for approval Friday.

$600,000 Cut in Debt

According to Steve Prested, one of Maui’s two founders, the bank has agreed to reduce Maui’s debt by $600,000, to $3.4 million, provided that Maui repays the full amount by Dec. 15 in monthly installments. No more interest on the debt will accrue.

The agreement between Mitsui and Maui was tentatively approved by the U.S. Bankruptcy Court in Santa Ana late last week.

Prested said Maui attorneys will meet with representatives of the firm’s remaining creditors Friday. If the agreement receives their blessing, the company hopes to have a final reorganization plan filed within a month.

“We’re going to pay off our largest creditor--Mitsui--first,” Prested said.

The company’s loan from Mitsui is secured in part by Maui’s clothing inventory. The firm’s other debts, owed to more than 200 creditors, were all unsecured.

“It’s a sound plan,” Prested said. “We’re paying all the other creditors 100 cents on the dollar.”

Prested said his attorneys have estimated that it will take from one to three years to repay the unsecured debt, which Prested estimated at $2.3 million.

Maui filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code in April, reporting assets of less than $2.5 million and debts of $7.1 million. Maui reported sales of more than $12 million last year.

Madras Drawstring Shorts

The company had received recognition as one of the fastest-growing small businesses in the country. Along with Prested, co-owners Rich Rietveld and Steve Yokoyama pooled $3,500 to make madras drawstring shorts. The product was wildly successful, and the firm branched into other clothing lines and accessories.

Both the company and its creditors have attributed the 5-year-old firm’s financial difficulties to cash-flow problems caused by its rapid expansion.

Until now, Maui subcontracted with other firms to manufacture the finished products, which Maui marketed and distributed. Under the proposed new arrangement, third-party licensees will manufacture and distribute Maui’s designs.

By marketing Maui products under license, Prested said, the company will achieve higher profits with less financial liability.

Company Will Get Royalty

Agreements have been reached with three manufacturers, including American Apparel of New York an Shorebreak in San Diego, to produce and distribute Maui products. Prested said the company will receive a royalty of 8% to 11% of sales under the licensing agreements.

Prested said Maui is negotiating licensing agreements with other manufacturers as well. “They’re calling us round the clock,” he said, noting that Maui products continue to sell well.

While the initial revenue projections of the reorganized company are expected to be low, the fees and royalties from the licenses are expected to provide enough income to repay the creditors.