Following the sale of American Apparel’s intellectual property and certain equipment to Gildan Activewear Inc. for $88 million, the bankrupt retailer is now looking at deals to sell a few store leases and certain equipment to other companies.
Attorneys for American Apparel are in talks with Broncs Inc. for manufacturing leases at Garden Grove and certain equipment. They are also in the midst of finalizing terms with Buffalo Exchange Ltd., a retailer that buys and sells vintage and used apparel, for one of the bankrupt firm’s Chicago stores at 1563 North Milwaukee Avenue.
Gildan is not taking over any of American Apparel’s retail sites, nor its retail business. The Canadian firm, which makes T-shirts, fleece, socks and underwear, is expected to keep some of the manufacturing, distribution and warehouse operations that are located in the Los Angeles area. A bankruptcy court judge in Delaware still has to approve the sale, which could happen on Thursday. Bids were due last Friday, and the auction was held on Monday.
Other successful bidders at the auction were STRS L3 ACQ1 LLC, for a store lease at 39 South State Street, in Chicago, and 320 Broadway Partners, for a store at 320 Broadway in Nashville. S&E Apparel LLC, which does business as Next Level Apparel, became the successful back-up bidder with an offer price of $70 million in cash for the IP and some of the equipment and wholesale purchase orders should the one by Gildan not get approved.
In total, five companies out of seven bids submitted are expected to walk away with pieces of the business. The offer prices for the company are a haircut from two other bids in more recent years, the first of which was for some $550 million when founder and former chief executive officer Dov Charney aligned with Irving Place in December 2014. He made one last attempt at the company in early 2016 with a $300 million offer submitted by Hagan Capital Group and Silver Creek Capital Partners in hopes of getting a judge to stop the confirmation of the company’s bankruptcy plan in its first Chapter 11 filing.
“I think that the collapse of American Apparel is a result of misconduct and it stems from Wall Street malfeasance and thousands of jobs, if not almost 10,000 jobs, have been lost if not more than that. And I’m highly disappointed,” Charney said. “This was a transfer of wealth from Wall Street shareholders, entrepreneurs, workers and vendors — many of whom were in Los Angeles — to Wall Street advisers, hedge funds, lawyers and advisers. Even the funds — no one even made any money.”
American Apparel surprised many in the industry when it filed its second Chapter 11 petition last November, the so-called Chapter 22 filing, within months of exiting its first tour in bankruptcy court. The company was hampered by the debt accumulated when the turnaround efforts from its first bankruptcy filing — that was in October 2015 and the company emerged in February — failed to take hold.
American Apparel was founded in 1989 by Charney, and became one of the largest vertically integrated apparel manufacturers in North America, but the last time it made a profit was around 2009. At its peak, the company had annual volume of $633.9 million in 2013, according to regulatory filings with the Securities and Exchange Commission. When it exited its first tour of bankruptcy, creditors had agreed to convert $200 million of debt into equity, as well as inject $70 million of new capital into the reorganized firm. By the time it entered its second tour of bankruptcy court, the company was privately owned by creditors and bondholders and had severed ties with Charney.
In recent years, American Apparel was known more for the alleged shenanigans of Charney, who was dismissed in December 2014. The company hired Paula Schneider as its new ceo, but it soon became clear the retailer, which was carrying around $300 million of secured debt on its balance sheet, had insufficient liquidity to implement a turnaround plan and it filed for Chapter 11. Following its emergence, unfavorable market conditions were more widespread than expected. The retailer experienced a 32.7 percent year-over-year decline in sales, and a $40 million drop in earnings before interest, taxes, depreciation and amortization versus the year-ago period. Further, the firm found itself unable to secure the $40 million in additional new capital that was envisioned in the first plan of reorganization.
The latest events leave the state of American Apparel’s U.S. retail portfolio, totaling nearly 400,000 square feet, and its workers in question. A spokeswoman declined to provide an update on what’s to come for the workforce. The company said in a court filing Tuesday it intends to change its business names to APP Winddown LLC, APP Retail Winddown LLC and other similar conventions for the knitting, dyeing, freight and finishing arms.
Gildan, headquartered in Montreal, acquired Anaheim-based Alstyle Apparel LLC, a T-shirt and fleece manufacturer, in May for $110 million to expand its reach in the printables market. Upon the closing of its deal for American Apparel, Gildan will become the owner of the registered trademarks in the U.S. and other foreign countries for the core American Apparel brand, and for the Classic Girl, Standard American, Classic Baby and Sustainable Edition marks. In total, American Apparel’s trademark portfolio includes more than 120 registrations worldwide, according to bankruptcy court documents.