After some pushback from the bankruptcy trustee for American Apparel’s previous Chapter 11 filing, the again-bankrupt retailer on Monday formally secured a previously announced $30 million financing package from Encina Business Credit, The Wall Street Journal reports.
The bankruptcy trustee for American Apparel’s earlier Chapter 11 (from which it emerged in February) last week advocated this second bankruptcy action be shut down with prejudice, saying it is an “egregious” and prohibited effort to avoid the settlement payments the company should be making under the first plan.
But Judge Brendan Shannon of the U.S. Bankruptcy Court in Wilmington, DE on Monday signed off on the financing agreement, saying he “appreciated” the agreements made among the creditors, debtors and pre-bankruptcy lenders.
This latest development essentially represents the bankruptcy court giving American Apparel its blessing for its second bankruptcy protection in a little over a year. But while last year’s bankruptcy filing (which included a contentious fight against a bid from ousted founder Dov Charney) was meant to set the stage for the edgy apparel retailer’s comeback, this time there’s no talk of a turnaround. It’s much more about making sure the company’s creditors are satisfied and its assets are distributed.
While American Apparel has retained enough brand appeal to be an attractive takeover target for a company like Canadian T-shirt manufacturer Gildan (which has provided a stalking horse bid of $66 million for American Apparel’s brand and may also buy some of its inventory and manufacturing operations, but none of its stores), it failed to reclaim its place as a favored destination for urban basics or to beat back the financial pressures it faced as lower-quality, lower-priced fast fashion rivals took market share and fickle shoppers strayed.
American Apparel simply failed to “get its act together” after going private, according to Neil Saunders, CEO of retail research agency and consulting firm Conlumino.
“In our view this comes down to a lack of leadership,” Saunders wrote in an email to Retail Dive. “On the management front the company seems to have stumbled from one crisis to the next with the resignation of Paula Schneider as CEO leaving it rudderless at a time when it most needed direction. While the bondholders which took control deserve credit for rescuing the company, their intention appears to have been for American Apparel to tread water while they searched for a buyer. In a market as fast paced as fashion, this was always a risky option for a business that actually needed a long term turnaround plan.”
American Apparel will sell its assets at an auction scheduled for Jan. 9. Last week the company said it would close nine of its stores.