TUG OF WAR: American Apparel LLC would like it’s fabric back…now.
The company’s suing Santa Fe Springs, Calif., textile firm Tri-Star Dyeing & Finishing Inc. in Delaware Bankruptcy Court to have a judge force Tri-Star to turn over American Apparel’s raw fabric — just under 250,000 pounds of it — as well as stop it from demanding payment for debts owed prior to its November bankruptcy filing.
The fabric’s important for two reasons.
First, the company needs it to make good on an agreement it has with Gildan Activewear, which is in the running to buy parts of American Apparel in its bankruptcy auction scheduled for next month as the stalking horse bidder. Gildan and American Apparel said last month, at the time of the latter’s announcement of its Chapter 11 bankruptcy, it struck a deal to sell off the intellectual property along with other assets to the Canadian T-shirt firm for about $66 million. Included in that agreement are purchase orders by Gildan, which allow American Apparel to continue operating as close to business as usual in a bid to keep the value of its estate intact until the auction.
The successful purchase order is a condition to the sale agreement.
Obtaining the raw fabric is also necessary to avoid a default on the company’s debtor-in-possession financing agreement struck with Encina Business Credit. A judge approved the $30 million facility this week.
American Apparel alleges in its filing Tri-Star made good on dyeing a portion of the raw materials but the remainder — what the company is asking for — was left untouched and is being held until the company pays the dye house the $100,000 in outstanding invoices accrued prior to the bankruptcy. American Apparel estimates the cost to replace all of the fabric to be about $500,000.
Tri-Star wouldn’t be the first creditor to push back on American Apparel’s second bankruptcy, the first of which it emerged from earlier this year. Last month, the company asked a judge to have scanner repair company iTek Services Inc. hand over 50 scanners needed in its La Mirada, Calif., distribution center. The complaint said the scanner company is owed about $6,000.