Alternative Proposal Submitted to Buy American Apparel

In the continuing American Apparel saga, two investment funds submitted a proposal shortly before New Year’s Day to buy the Los Angeles apparel manufacturer out of bankruptcy.

The proposal, outlined in U.S. Bankruptcy Court documents filed Jan. 7 by American Apparel founder Dov Charney, provides increased liquidity and capitalization for the company, including giving American Apparel $30 million in cash when the deal closes, another $90 million in an equity cushion and an expected $50 million loan secured by collateral.

Total liquidity is estimated to be $170 million or more when the deal is completed rather than the $80 million under the current plan to take American Apparel out of bankruptcy.

The two investment funds, guided by Charney to the opportunity, were not named in court documents because they submitted their proposal directly to American Apparel after Charney announced in early December that he had engaged Cardinal Advisors, a Los Angeles–based financial adviser, to explore strategic alternatives.

“American Apparel evaluates all bids consistently,” said an American Apparel spokesperson. “The company remains focused on pursuing the completion of its financial restructuring following its planned bankruptcy court hearing at the end of this month.”

When American Apparel filed for Chapter 11 bankruptcy protection on Oct. 5, the company already had a pre-packaged organization plan in place where the secured lenders would convert $200 million in bonds into equity in the reorganized company. The secured lenders have already provided $90 million in debtor-in-possession financing as well as $70 million in new liquidity.

The pre-packaged organization plan would reduce American Apparel’s debt to $120 million from $311 million, and its annual interest expenses would fall by $24 million.

Among the participating secured lenders in the pre-packaged proposal are Standard General, Monarch Alternative Capital and Goldman Sachs Asset Management. Together, they represent 95 percent of the retailer’s secured lenders.