Bid to Return Charney to American Apparel Made More Attractive

At the last minute, two investment companies that bid in late December to buy American Apparel out of bankruptcy and return founder Dov Charney to the company have sweetened the deal to make it more enticing.

Hagan Capital Group and Silver Creek Capital Partners announced on Jan. 11 they have upped their bid from $200 million to $300 million to acquire the Los Angeles clothing company that filed for Chapter 11 bankruptcy protection in October.

The American Apparel investment would be managed by Press Play Group, the private equity arm of San Francisco and Shanghai–based PressPlay Global, which is backed by Hagan and Silver Creek.

Charney said he has developed a business plan that he and the investor group believe will rapidly improve the company’s business performance. “I am confident that given the opportunity, I will successfully turn around the company’s fortunes, return it to profitability and to a market leading position again,” said American Apparel’s founder—who was ousted as the chief executive and president more than one year ago—in a statement.

Bloomberg News is reporting that American Apparel's board of directors has rejected Charney's bid to buy the company.

The Charney-supported proposal includes $130 million from the investor group, with $90 million of new stock and $40 million from a term loan. American Apparel would exit bankruptcy with $160 million in cash and new equity and a $50 million credit line, according to the statement. It also would have a cushion of $90 million in equity, compared with about $75 million under the earlier debtor plan.

The Charney-backed bid is much higher than the $180 million to $270 million plan put forth in a pre-packaged bankruptcy filing plan.

That pre-packaged plan was unanimously approved on Jan. 7 by all voting classes. American Apparel said it intends to submit the plan to the U.S. Bankruptcy Court on Jan. 20 for approval. “The company remains focused on pursuing the completion of its financial restructuring following its planned bankruptcy court hearing at the end of this month,” said an American Apparel spokesperson.

The approved plan means that the secured lenders would convert $200 million in bonds into equity in the reorganized company. They will also provide $90 million in debtor-in-possession financing as well as $70 million in new liquidity. The plan includes an additional $40 million in capital through an asset-based credit facility from a third-party lender.

American Apparel’s debt would be reduced from $300 million to no more than $135 million and annual interest rates would be decreased by $20 million.

The secured creditors are Standard General, Monarch Alternative Capital, Coliseum Capital, Goldman Sachs Asset Management and Pentwater Capital Management.

“This is an important step forward in emerging from our restructuring process as a stronger, more vibrant company,” said Paula Schneider, who stepped in as American Apparel’s new chief executive one year ago. “We remain focused on executing our turnaround plan and positioning American Apparel for the future by creating new and relevant products, launching new design and merchandising initiatives, growing our e-commerce business and creating exciting and creative marketing campaigns to share the story of our progress.”