Frederick's of Hollywood in debt exchange deal

* Company to exchange $22.6 mln of debt for common stock

* Made deal with investor Fursa, Fursa to get warrants also

* CEO says would look to raise equity in the future

* Debt deal is part of turnaround effort

NEW YORK, Feb 2 (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.

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 share 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 warrants to purchase 500,000 shares of common stock over the next three to seven years.

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.

Shares of Frederick's closed at $1.19 on Monday on the American Stock Exchange.

(Reporting by Emily Chasan; Editing by Phil Berlowitz)