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American Apparel's new meltdown imperils Goldman Sachs stake

Wednesday, November 16, 2016 - 11:16

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Goldman Sachs Group Inc and three other investors stand to lose as much as US$123 million after taking a chance on American Apparel Inc, only to see the troubled clothing maker file for bankruptcy for the second time in 13 months.

[DELAWARE] Goldman Sachs Group Inc and three other investors stand to lose as much as US$123 million after taking a chance on American Apparel Inc, only to see the troubled clothing maker file for bankruptcy for the second time in 13 months.

Goldman Sachs Asset Management LP, Monarch Alternative Capital LP, Coliseum Capital Management LLC and Pentwater Capital Management LP own 94 per cent of the iconic brand and hold US$189.2 million of its senior debt. For them to have any chance of recovering their investments, American Apparel will need more than the limited US$66 million bid it has attracted so far.

"If no one shows up at the auction, then I think it's not hard to imagine what will happen," the retailer's lead bankruptcy attorney, Scott J. Greenberg of Jones Day, told U.S. Bankruptcy Judge Brendan L. Shannon at a hearing Tuesday in Wilmington, Delaware.

American Apparel filed for bankruptcy on Monday, nine months after the four investors took over the company in exchange for canceling as much as US$200 million in debt and after investment bank Houlihan Lokey Capital Inc tried to find a buyer.  Canadian T-shirt and underwear maker Gildan Activewear Inc has made the only binding bid, agreeing to buy the American Apparel brand and some wholesale inventory. The Montreal-based company may also bid on American Apparel's warehouses and factories, but the agreement doesn't include the stores.

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Los Angeles-based American Apparel will keep trying to attract a buyer for all its assets, including its 110 US retail locations - less than half the number the company ran in its heyday.

"The company has been evaluating several competitive bids, some of which involve interest in retail," Arielle Patrick, a spokeswoman for American Apparel, said in an e-mail. "We see potential for the retail business to continue under a possible new buyer stemming from the auction." When American Apparel filed for bankruptcy the first time, in October 2015, Goldman Sachs and the other owners held about US$243 million in the company's senior debt, not including interest or fees. They traded that in for their current ownership stakes and about US$90 million in debt when the company exited Chapter 11 in February.

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