Struggling teen apparel retailer Aeropostale Inc filed for Chapter 11 bankruptcy protection on Wednesday. In an unexpected twist, the company is blaming another business for its financial woes, namely Sycamore Partners, its main lender and the owner of a critical supplier for the company. Aeropostale asked a court for permission to investigate Sycamore Partners, claiming that the company deliberately forced its deterioration.
In the filing submitted to the United States Bankruptcy Court for the Southern District of New York, Aeropostale’s Chief Executive Officer Julian Geiger blamed the decisions of Sycamore, which also owns key clothing supplier MGF Sourcing, for causing harm to the business, citing several instances. Last year Geiger complained that MGF’s prices were too high, resulting in Aeropostale paying $25 million more than it would for comparable merchandise from competing suppliers. Geiger also made allegations that Sycamore had violated a sourcing agreement with Aeropostale.
Geiger said in court papers that all this occurred because Sycamore’s managing director Stefan Kaluzny had a plan to let Aeropostale deteriorate so that he could buy the company in bankruptcy. During the summer and fall of 2013, Sycamore affiliate Lemur LLC bought 8 percent of Aeropostale’s equity in the open market. Since 2014, Sycamore and entities it controls have developed relationships with Aeropostale and Sycamore also owns Aero Investors LLC, its largest secured creditor. Aeropostale has asked the court to appoint an independent examiner to probe Sycamore and Kaluzny, along with others.
Aeropostale, a brand established by R.H. Macy & Co. in the early 1980s, said in its bankruptcy filing that it intends to emerge from the Chapter 11 process within the next six months as a standalone enterprise with a smaller store base. The company listed assets in the range of $100 million to $500 million, and liabilities of $100 million to $500 million. It also announced securing a commitment for $160 million in debtor-in-possession financing from Crystal Financial to meet financial commitments during the restructuring.
As part of the bankruptcy filing, Aeropostale plans to close 154 stores immediately, including 113 U.S. locations and all its 41 stores in Canada. As of the 2015 fiscal year end, the company operated 811 stores, and it currently has 14,500 employees. Since 2013, the company has closed about 215 stores. About 60 percent of the company’s remaining locations in the U.S. are approaching the end of their leases, which means more closings are likely. Aeropostale also said that is also continuing its previously announced sale process, and expects any potential sale would be completed within the next six months.