- Offer valuing American Apparel at $300 million is superior to the debtor’s plan of reorganization and is a win-win solution for the Company and all of its stakeholders
- Debtor’s plan is not feasible and will lead to poor long-term recoveries for the Company’s stakeholders and put thousands of manufacturing jobs in Los Angeles at risk
- The acquisition proposal has the support of the Company’s founder, Dov Charney, whose leadership and vision is central to American Apparel’s long-term viability
Last week reported that Dov Charney had teamed up with a financial backer to make a bid for his former company, American Apparel, has been confirmed. Though instead of offering up $200 million for the retailer, as orinaally reported, Charney and his ally have sweetened the deal, throwing $300 million on the table.
The American Apparel investment would be managed by PressPlay Group, the private equity arm of San Francisco and Shanghai based PressPlay Global, which is backed by Hagan and Silver Creek, announced today. Calling the offer superior to a bankruptcy plan that would see the company going to bondholders.
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This is a big move for Charney, who was kicked out of the company in December 2014 following allegations of misconduct. American Apparel has seen worsening sales since at least 2010, and things didn’t get much better after Charney’s departure. The retailer filed for bankruptcy protection in October of this year, after earlier admitting it’d run out of financing to keep things going.
“Dov’s creativity, entrepreneurialism and dedication are the cornerstone of American Apparel, ” Chad Hagan, managing partner of Hagan Capital, said in the statement. “Removing him from the company’s board and leadership was a shortsighted mistake, and we are seeing the results of this error unfold in the declining performance of the company today.”
The terms of the proposal includes an investment from the Investor Group of $130 million, including $90 million of new equity and $40 million of a new term loan. American Apparel would exit bankruptcy with approximately $160 million of liquidity and new equity, including cash, a new $50 million undrawn revolving credit facility, and $90 million of equity cushion at closing, versus approximately $75 million under the debtor’s plan of reorganization.
The total enterprise value of the proposed transaction is $300 million, an attractive valuation to the debtor and above the valuation range of $180 to $270 million publicly stated by the debtor in its disclosure statement. The Investor Group’s offer is an upward revision to a prior proposal submitted by the Investor Group to the Company in December 2015.
Under the Investor Group’s offer, the Company’s pre-petition senior lenders will receive a recovery of over 100 percent versus 33 percent to 77 percent under the debtor’s plan, assuming the low and high values of the debtor’s valuation range. Additionally, the unsecured creditors will receive a recovery of ten times that under the debtor’s plan, plus the benefits from the enhanced long-term viability of the enterprise.
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