Charney loses bid to buy back American Apparel

Dov Charney, the founder and former CEO of American Apparel, said he was “disappointed” by a decision from a U.S. Bankruptcy judge that rejected his bid to buy back the company he founded.

Charney, in a January 25 statement, said he believed the path followed by American Apparel’s management “is a road to ruin.”

“I have been working tirelessly for nearly two years to avoid this outcome in an effort to protect value for the company’s various stakeholders,” Charney said. “Now all stockholders will have their shares and value extinguished.”

Charney’s comments came after U.S. Bankruptcy Judge Brendan Shannon approved a reorganization plan backed by American Apparel’s creditors. The ruling clears the way for an investor group, led by Monarch Alternative Capital, to gain control of the teen retailer once it emerges from bankruptcy, Reuters said. Monarch, a New York-based distressed investor, is American Apparel’s biggest bondholder.

American Apparel is expected to come out of bankruptcy in five to 10 days, a source said.

Charney told Buyouts on January 26 he has no plans to appeal the Judge’s ruling. “It requires a bond which I don’t have,” he said. He declined to comment on his future plans.

“All I know is this business,” Charney said. “I started it when I was a teenager so it’s very difficult for me to imagine restarting my career.”

Paula Schneider, American Apparel’s CEO, said the ruling was a “a great accomplishment” for the retailer, according to a statement. Once the company’s amended plan becomes effective, American Apparel’s secured lenders will convert $230 million of secured debt into equity and provide $80 million in liquidity. The retailer is “fully focused on executing” its turnaround strategy, Schneider said.

A spokesperson for the company declined to comment beyond the statement.

Los Angeles-based American Apparel filed for Chapter 11 bankruptcy protection in October. The retailer, which sells “basics” like leggings, shorts and skirts for teens, operates 218 stores in 19 countries. American Apparel ousted CEO Charney in June 2014 amid allegations of sexual harassment and misuse of company funds, press reports said. 

Earlier this month, Charney made a $300 million bid for American Apparel. Investors including Hagan Capital Group and Silver Creek Capital Partners backed his offer.

Judge Shannon’s decision means the company’s shareholders, including Charney, who was once a large minority shareholder, will see their ownership of American Apparel wiped out, the New York Times said.

Charney, in his statement, said he didn’t think American Apparel would survive and didn’t believe “the current management has the talent to bring it back to health.”

“At the end of this saga, I, like the many former stockholders, will most likely be left with nothing,” Charney said. “Despite that, what gives me great optimism are the things I possess that can’t be stolen by a predatory hedge fund — my ideas, values, drive, authenticity, integrity and my passion. To that end I ask that my supporters stay tuned.”

Monarch could not be reached for comment.

Action Item: Read Charney’s complete statement here:

Photo: The American Apparel factory headquarters is pictured in Los Angeles, California July 7, 2014. REUTERS/Jonathan Alcorn