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Donnkenny in Ch. 11

Sportswear firm Donnkenny Inc. filed for what chairman and ceo Daniel Levy said will be a short stay in Chapter 11 bankruptcy protection.

NEW YORK — In a sign of the times for midsized manufacturers, Donnkenny Inc. filed for Chapter 11 bankruptcy protection on Monday in the Southern District of New York.

The New York-based company also entered into an asset purchase agreement with Donn K Acquisition, a company affiliated with Pacific Alliance, an apparel manufacturer here. The deal is subject to bids from other parties.

“We expect to keep receiving, shipping, etc.,” said Daniel Levy, Donnkenny chairman and chief executive officer, of the firm’s stay in bankruptcy, which isn’t anticipated to be more than two months.

The company has been ramping up production of several licensed lines under the Nicole Miller name, including nicole by Nicole Miller, which is exclusive to J.C. Penney, as well as Nicole Miller New York, a better-priced sportswear collection. Levy said the business is finally well-positioned with the rollout of the Nicole Miller lines.

Donnkenny, with annual wholesale volume of slightly more than $90 million, also markets Pierre Cardin fashions and has a private label pants business. For the third quarter ended Sept. 30, the firm posted its sixth-straight quarter of losses with $5 million of red ink on sales of $22.6 million.

Levy said he expected to stay with the business should the Pacific deal go through.

Donnkenny secured a $60 million debtor-in-possession credit facility with CIT Group/Commercial Services and Wells Fargo Century Inc., as well as a factoring agreement with CIT. The financing is subject to court approval.

Donnkenny stock dropped 11 cents per share, or 47.8 percent, to 12 cents in over-the-counter trading Monday. The firm’s shares traded as high as $2.74 during the last year.

“Donnkenny has been a collection of nonbrands over the years,” Levy said. It is no secret that business has become extremely difficult for midsized unbranded vendors.

Levy said he knew the challenges and tried to transition to more of a branded orientation with the Nicole Miller license, signed last year, but it was too late.

In addition to funds needed to ramp up new businesses, the upcoming lines also hurt sales last year as retailers waited for the new offerings. The firm in the last year has trimmed the headcount in the New York offices to about 75 employees from 120. The vendor was also strained by the growth of retailers’ own private label brands, pricing pressure and the move of moderately priced apparel to a collection orientation instead of an item positioning.

“We were competing in a segment that we couldn’t win at and didn’t make the switch over early enough strategically,” Levy said. “You need economies of scale,” he added, noting having smaller brands, which each needed their own staffs was more expensive than having one key business would have been.