American Apparel and creditors reject founder-supported plan proposal

By Caroline Salls

Pittsburgh, Jan. 15 – American Apparel, Inc., its official committee of unsecured creditors and bondholders rejected a proposal submitted by an investor group comprised of Hagan Capital Group and Silver Creek Capital Partners in favor of the company’s amended plan of reorganization, according to documents filed Friday with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, the Hagan and Silver Creek offer was supported by American Apparel founder Dov Charney.

The committee said in a company plan support statement that American Apparel’s amended plan “permits the debtors to swiftly emerge from Chapter 11 as a well-capitalized, substantially de-levered and viable business enterprise with sufficient liquidity.”

Specifically, the committee said the amended plan enhances recoveries for holders of unsecured claims by about 30 times the recoveries included in the original plan, provides reorganized American Apparel with a further commitment of $40 million of exit capital from a third-party lender or a committee of lead lenders and modifies the company’s exit financing agreements to give the reorganized debtors greater flexibility in implementing their turnaround strategy.

The committee said the amended plan also increases the initial litigation trust “seed funding” to $500,000 from $250,000, proposes a fair and equitable split of proceeds generated from the trust among holders of general unsecured claims and pre-bankruptcy deficiency claims and allows the litigation trustee to monitor the claims reconciliation, objection, estimation and settlement process for specified causes of action.

In the absence of a waiver of the bondholders’ deficiency claim, the committee said that claim would still exist as part of the Hagan/Silver Creek proposal. As a result, the committee said that proposal “does not produce a better overall result for general unsecured creditors than the settlement embodied in the amended plan.”

In a separate statement, American Apparel said its amended plan “is far and away the best means of restructuring the debtors’ capital structure that has surfaced to date.”

The company said its plan eliminates $200 million of debt from its balance sheet and will be accompanied by $80 million of exit capital, “cementing the feasibility of the reorganized debtors’ turnaround plan.”

American Apparel said the original and revised proposal submitted by Hagan and Silver Creek “do not represent a material improvement over plan valuation, cannot meet the self-stated necessary condition of securing noteholder support and, if pursued on a non-consensual basis, do not provide sufficient funding to immediately repay the DIP credit facility and fund a prolonged, contested process.”

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.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.