American Apparel gets $300 million purchase offer with founder support

By Caroline Salls

Pittsburgh, Jan. 11 – American Apparel, Inc. received a $300 million purchase offer from an investor group comprised of Hagan Capital Group and Silver Creek Capital Partners, according to a news release from Cardinal Advisors, LLC, the financial adviser for company founder Dov Charney.

Cardinal said the offer valuing American Apparel at $300 million is superior to the company’s plan of reorganization. The adviser said American Apparel’s plan is not feasible and will lead to poor long-term recoveries for stakeholders and put thousands of manufacturing jobs in Los Angeles at risk.

Charney supports the acquisition proposal.

According to the release, the American Apparel investment would be managed by PressPlay Group, the private equity arm of PressPlay Global, which is backed by Hagan and Silver Creek.

The terms of the proposal include an investment of $130 million, including $90 million of new equity and a $40 million new term loan. American Apparel would exit bankruptcy with about $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 roughly $75 million under the company’s plan of reorganization.

Cardinal said the total enterprise value of the proposed transaction is $300 million, above the valuation range of $180 to $270 million publicly stated by American Apparel in its disclosure statement.

Under the investor group’s offer, the company’s pre-bankruptcy senior lenders would receive a recovery of more than 100%, versus 33% to 77% under the company’s plan. Additionally, the unsecured creditors would receive a recovery 10 times greater than under American Apparel’s plan.

“American Apparel is a proven viable business model that needs to be scaled from a sales point of view and should not be in bankruptcy,” Hagan managing director Chad Hagan said in the release.

In addition, Hagan said, “Removing [Charney] 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.”

In the nine months ended Sept. 30, Cardinal said net sales and gross profits declined 15.5% and 29.2%, respectively.

“The historical record on this is clear at this point: The company is a far less profitable business than it was under Mr. Charney’s tenure as chairman and CEO, and the company’s sales and EBITDA only continue to deteriorate further under the new regime,” Hagan said in the release.

Proskauer Rose LLP is serving as legal counsel to Hagan Capital Group and Silver Creek Capital Partners.

American Apparel, a Los Angeles-based manufacturer, distributor and retailer of branded fashion basic apparel, filed for bankruptcy on Oct. 5 in the U.S. Bankruptcy Court for the District of Delaware. The Chapter 11 case number is 15-12055.

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