The final half of American Apparel’s bankruptcy hearing today delved into the financial weeds of the most recent bid made by the investor group affiliated with Dov Charney.
Charney, the founder and ousted chief executive officer of American Apparel, along with Hagan Capital Group managing partner and group president Chad Hagan, will take the stand Thursday when court reconvenes in Delaware.
The Hagan $300 million bid, which it went in on with Silver Creek Capital Partners, sought to reinstate Charney in a leadership role at the Los Angeles-based company, which filed for Chapter 11 bankruptcy in October. The offer was ultimately rejected.
Many of the arguments that rounded out the day’s hearing focused on the $50 million revolving credit facility being offered up as part of the Hagan-Silver Creek bid. Attorneys for Charney contend the analysis conducted by American Apparel financial adviser Moelis & Co. was flawed when it attempted to make an apples-to-apples comparison of the Hagan bid with the reorganization plan before the judge.
Questions around the sale-marketing process were also raised as to whether players in the space, such as private equity firm Gores Group or Iconix Brand Group, were ever contacted about potential interest in American Apparel.
Time and money — and the lack of both — were central themes throughout the day during Moelis managing director Robert Flachs’ and chief restructuring officer Mark Weinstein’s testimony, especially given the most recent numbers for the business.
Same-store sales in December were in the negative 20s, according to Weinstein’s testimony, and November, while not as bad, was also below expectations. Lack of inventory in stores was blamed for the disappointing results, a problem Weinstein said has been corrected.
American Apparel ceo Paula Schneider testified earlier in the day that overall traffic into stores for 2015 was down from 2014, although conversions were slightly up from a year earlier.
Schneider’s testimony kicked off the day’s hearing, painting a picture of an organization operating more as a start-up than the publicly traded, multimillion-dollar company it was when she joined. Schneider testified she walked into the company in January and, at the time, it had no spring line, more than 70 people were direct reports to the ceo, there was a looming bond payment and four million units of slow-moving product. Amid all of that was the company’s well-publicized dot sale that ended up doing more harm than good to the business.
“They thought it would improve comps, but what it did was pretty much break the system,” Schneider testified of the sale. “It basically looked like you were going out of business.”
A judge is expected to rule Thursday on whether American Apparel’s plan to emerge from bankruptcy should get the green light, which would essentially seal off any other opportunity for prospective bidders to enter the fray.