Bankrupt retailer American Apparel has proposed tweaking the timeline for its sale but said a four-week extension urged by its unsecured creditors would imperil a bid by Canadian clothing manufacturer Gildan Activewear. American Apparel said in court papers filed on Thursday that it would postpone the deadline for bids to Jan. 3 from the original proposed deadline of Dec. 19 and proposed holding an auction on Jan. 5 rather than Dec. 21.
The teen-focused retailer famous for its racy advertising added in its papers filed in U.S. Bankruptcy Court in Delaware that it does not have funds to run a protracted sale, noting it is burning up to $2 million a week to keep its operations going. Struggling with mounting losses, Los Angeles-based American Apparel last month filed its second bankruptcy in just over a year with a plan to sell its brand and wholesale inventory to Gildan for roughly $66 million.
Gildan's offer does not include American Apparel's 110 retail and outlet stores in the United States. A buyer for the stores, which will remain open, may emerge at auction.
American Apparel's unsecured creditors' committee on Wednesday in court papers sought to postpone the auction till Jan. 18. "Interested parties likely need to form partnerships, joint ventures, and/or licensing arrangements that simply may not be possible to negotiate in the next few weeks," the committee said.
The unsecured creditors noted that potential purchasers may be interested in different parts of American Apparel's business, such as the company's brand, intellectual property, inventory, manufacturing facilities and shops.
But American Apparel said pushing the sales process to mid-January would be "unworkable" due to milestones in its stalking-horse agreement with Gildan that sets a floor on bidding. Gildan could walk away from the agreement if the process is extended as proposed by the committee, American Apparel said. "Due to the extensive marketing process that has been undertaken already, an additional four weeks is highly unlikely to unearth new bidders," the company said.
One of the largest clothing manufacturers in the United States, American Apparel filed its first bankruptcy last year due to a $300 million debt load, intense competition and excess inventory. The company also faced millions of dollars in legal liabilities stemming from former Chief Executive Dov Charney, who was ousted in 2014 over allegations of misconduct. He has denied the allegations.
Bankruptcy Judge Brendan Shannon will hold a hearing on the dispute between American Apparel and its unsecured creditors on Friday.
* The case is In re American Apparel LLC, in U.S. Bankruptcy Court for the District of Delaware, No. 16-12551.