Manhattan bankruptcy court judge Sean Lane issued his opinion on Friday afternoon and it clears the way for Sycamore Partners to credit bid on Aéropostale’s assets in Monday’s auction.
In so ruling, the judge denied all of Aéropostale’s claims, including its request that Sycamore’s secured claims be placed lower on the creditor totem pole.
The judge wrote: “Given the extensive trial record and the applicable law, the court must deny the debtors’ motion. The court concludes that there is not a basis to equitably subordinate the term lenders’ claim, limit their ability to credit bid or recharacterize their loans.”
In judge Lane’s opinion, he further concluded that MGF, an affiliate of Sycamore’s that provided merchandise to the retailer, did not breach the parties’ sourcing agreement. He also shot down Aéropostale’s claim that Sycamore’s overall conduct was part of a secret and improper plan to buy the retailer at a discount. And judge Lane said he found no evidence to support Aéropostale’s allegation that Sycamore improperly traded stock while in possession of the retailer’s material nonpublic information.
The judge also determined from trial testimony and related document submissions that members of the management team didn’t even know a liquidity provision had been triggered. More specifically, executives from the c-suite — the chief financial, chief operating and chief executive officers — either didn’t know that the liquidity provision was in place, or if they knew, were only “vaguely” aware of it. Further, due to miscalculations on the part of management, the company had “systematically overstated” their own liquidity under the sourcing agreement “by between $34 to $40 million, depending on the month forecasted,” according to the judge’s opinion.
The updated timeline has an auction scheduled for Monday on Aéropostale’s assets. Sycamore is expected to submit a credit bid. The private equity firm, also the teen retailer’s one time pre-petition lender at $150 million, declined comment. It wasn’t immediately clear whether Versa Capital, a private equity firm that was in negotiations to become the stalking horse, would submit a bid. Versa had sought $500,000 in reimbursement expenses because of concerns that Sycamore would credit bid, and had passed the Aug. 11 deadline to execute an agreement. Given that Sycamore can now credit bid, Versa likely won’t be bidding for the assets. Other parties likely to be circling the wagon are liquidation firms hoping to buy the inventory and store assets so they can conduct going-out-of-business sales.
A bankruptcy court judge will evaluate what offers are made and determine what is best for the company, its 10,000-plus employees and the creditor pool.
A spokeswoman for Aéropostale said: “Aéropostale is disappointed with the Bankruptcy Court’s decision in its litigation against Sycamore Partners and Aéropostale stands by the accuracy and truthfulness of everything said and documented by it during the proceedings. The company is now focused on moving forward as planned with an auction on Monday, August 29.”