Uncertainty still shrouds American Apparel as a decision on the company’s bankruptcy plan has now been pushed into next week.
The hearing in Delaware Bankruptcy Court aims to determine whether a plan that would place the bondholders in charge of the Los Angeles firm gets approved or is thrown out, along with an extension of an exclusivity period that would block competing proposals from entering the picture. At risk is debtor-in-possession funding that requires the company’s bankruptcy plan to be approved by Feb. 2 or the struggling business risks losing access to capital.
The two-day hearing began Wednesday and included testimony from American Apparel chief executive officer Paula Schneider along with Robert Flachs, from American Apparel financial adviser Moelis & Co., and chief restructuring officer Mark Weinsten.
On Thursday, all eyes turned to the retailer’s controversial founder and former ceo Dov Charney, who was his animated self in taking the stand.
Charney jokingly told WWD when reached by phone Thursday that he had likely confused the judge with his “schmatta story” about American Apparel’s beginnings during his testimony, but ultimately said “it’s uncertain” about which way the decision might go.
The hearing would have simply been a matter of the judge approving or striking down the company’s plan for reorganization were it not for the battle that erupted late last year in what boils down to who will own American Apparel upon its emergence from bankruptcy.
The company’s request last year to extend its period of exclusivity on the plan was met last week with an objection fired by Charney. It all came to a head when Hagan Capital Group and Silver Creek Capital Partners put in a bid for the company over the holidays. The offer was revised — and ultimately rejected — this month, the latest proposal of which offered about $300 million for the company and included a $50 million revolving line of credit.
It was the asset-backed loan that appeared to be a sore spot during negotiations and became the center of much of the questioning Wednesday in court as Charney’s attorney grilled Flachs and Weinstein on the process for analyzing that portion of the bid in comparison to the existing reorganization plan. Those involved in the deal process on the Hagan-Silver Creek side described increasing tension leading up to the talks that also became part of the arguments in court with Hagan telling WWD on the eve of the hearing’s start “we are interested in doing a deal so long as they show good faith and are willing to negotiate. So far the board and bondholders have not been willing to do so.”