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American Apparel Founder’s Bid for Company Said to Move Forward

American Apparel Inc. founder Dov Charney’s attempt to return to the company moved a step closer after firms backing him made nonbinding offers to buy the bankrupt retailer.
An American Apparel billboard | Source: Flickr/Emily Burnett
By
  • Bloomberg

LOS ANGELES, United States — American Apparel Inc. founder Dov Charney's attempt to return to the company moved a step closer after firms backing him made nonbinding offers to buy the bankrupt retailer, according to people familiar with the situation.

More than one entity working with Charney have signed nonbinding letters of interest — which include the value of potential offers — and nondisclosure agreements to review the retailer’s financial documents, said the people, who asked not to be named because the matter is private. One of the groups is a private-equity firm, the people said. The likelihood that this interest will result in a formal bid with financing in place isn’t known.

Charney, 46, said earlier this month that he was working with a financial adviser on an offer and that he’d been in talks with potential financial partners. He’s been trying to hatch a return to American Apparel since he was fired last year from his dual roles of chief executive officer and chairman following allegations of misconduct. Last year, Irving Place Capital was working with Charney and submitted a letter of interest with an offer price, but a deal stalled.

American Apparel, which entered bankruptcy in October, said there’s currently no transaction to consider, according to a spokeswoman. She did confirm that an indication of interest involving Charney had been submitted, and said the company evaluates all such overtures.

Charney declined to comment.

The controversial former CEO is running out of time to regain control. Creditors will vote in the next few weeks on a reorganization proposal backed by senior lenders. The plan, arranged before American Apparel entered bankruptcy, would hand ownership to bondholders led by Monarch Alternative Capital. U.S. Bankruptcy Judge Brendan Linehan Shannon will then hold a hearing in January to make a final decision about whether to approve the reorganization.

Bondholders Key 

Charney will need to convince American Apparel’s current managers, or its bondholders, that he can offer more money to creditors than the current plan. If that fails, he could object to the plan during the January hearing. He would need to show that he’s committed financial backing in order to persuade the judge to choose his proposal.

Under a deal American Apparel developed before filing bankruptcy, the company would cut debt by giving itself to creditors owed about $200 million, according to court documents. The plan was supported by 95 percent of secured lenders, who will be fully repaid under the proposal.

Moelis & Co., the investment bank American Apparel is using to seek out and assess potential offers, said in court documents that the company would be worth between $180 million and $270 million. This valuation included assumptions such as American Apparel hitting sales targets in the next few years and that it leave bankruptcy with no more than $135 million in debt.

The retailer was struggling with losses and debt under Charney, and its results only worsened after his dismissal. When it filed for bankruptcy protection, it had $199.3 million in assets and $397.5 million in debt.

Harrassment Complaints

Charney faced years of allegations that he sexually harassed employees. While the lawsuits were either dismissed or settled privately, they eventually led the board to investigate him. After finding examples of misusing corporate funds and violating the sexual-harassment policy, the board suspended him in June 2014. During a second probe, the company collected a dossier of employee complaints of abuse, sometimes physical. American Apparel made his firing official last December.

Charney has denied the allegations, saying he was ousted because he wouldn’t go along with a plan to sell the chain.

Charney also had a penchant for edgy advertising that critics said looked like pornography. American Apparel’s ads frequently showed half-dressed young women in alluring positions. One of the company’s New York stores even featured mannequins with pubic hair. Since his firing, American Apparel said it went too far in embracing “nudity and blatant sexual innuendo” under Charney.

The case is In re American Apparel Inc., 15-12055, U.S. Bankruptcy Court, District of Delaware.

By Matt Townsend, with assistance from Steven Church. Editors: Nick Turner, Mark Schoifet.

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