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Aéropostale’s Next Stop: Liquidation?

Aéropostale’s Next Stop: Liquidation?

UPDATE: A consortium of landlords, liquidators and the licensing company Authentic Brands Group reportedly made a collective $243.3 million bid on Aéropostale, according to the Wall Street Journal. The bid would save 229 Aéropostale stores and as many as 10,000 employees.

The consortium included Simon Property Group and General Growth Properties — two mall operators serving as landlords to Aéropostale stores — as well as liquidators Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC.

A second bidding group, made up of liquidator duo Tiger Capital Group LLC and Great American Group LLC, also has made an undisclosed offer.


 

Aéropostale, the teen retailer that initially filed for bankruptcy in May but determined it would be unable to reorganize, may be getting closer to liquidation after the company held an auction of its assets on Aug. 29.

The retailer received a confirmed bid from private equity firm and lender Sycamore Partners as well as numerous additional bids from liquidators, according to a Reuters report. It is unclear what Sycamore's plans are for the business should the firm win the auction.

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Sycamore initially loaned Aéropostale $150 million in 2014 when the brand first tried to reorganize. However, the companies have been engaged in an ongoing legal dispute that began when the retailer alleged the venture capital firm’s partner, clothing supplier MGF Sourcing, disrupted its merchandise supply and imposed stricter payment terms. The retailer had alleged that the lender's affiliates caused liquidity and inventory troubles that could sabotage the retailer and move it into bankruptcy. Sycamore representatives have denied the accusations.

In line with the allegations, Aéropostale had requested that the bankruptcy judge prevent Sycamore from using the $150 million loan to place a credit bid in the auction, but the judge denied that request. With a credit bid, the bidding party can offer the amount they are owed rather than cash to acquire companies.

Investment firm Versa Capital Management initially considered acquiring the assets of Aéropostale to save as many as 500 of the retailer’s locations, but it did not make a bid before the submission deadline of Aug. 25. With Versa out of the picture, the retailer’s future remains up in the air.

This financial uncertainty definitely isn’t a new experience for teen retailers, with brands such as Wet Seal, Quiksilver, American Apparel, Delia’s and Pac Sun all filing for bankruptcy at various points over the past two years. In the case of Wet Seal, Versa actually saved the business with a $7.5 million cash acquisition, showing that businesses still need to do some heavy lobbying to convince a third party to buy in.

With mall traffic declining by as much as 30% within a decade's span and traditional retailers now being encouraged to cut their store space, Aéropostale will more than likely have to downsize its business even if it does manage to stay afloat.

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