Monarch-led group vies for control of American Apparel

An investor group led by Monarch Alternative Capital is battling for control of American Apparel Inc.

On January 20, U.S. Bankruptcy Court Judge Brendan Shannon will decide between a reorganization plan put forth by the retailer’s creditors, led by Monarch, and a competing bid by American Apparel founder Dov Charney.

American Apparel said on January 11 that all of its creditors had approved the reorganization plan. The plan calls for more than $200 million in bonds to be eliminated in exchange for shares in the reorganized American Apparel, the Los Angeles Times reported.

Judge Shannon will also consider a $300 million bid for American Apparel from a group of investors led by Charney. The investor group includes Hagan Capital Group and Silver Creek Capital Partners. The deal reportedly includes $90 million of new equity and a $40 million term loan.

Dov Charney, American Apparel
American Apparel owner Dov Charney speaks during a May Day rally protest march for immigrant rights, in downtown Los Angeles May 1, 2009. REUTERS/Mario Anzuoni

American Apparel is expected to emerge from bankruptcy after the January 20 hearing, an American Apparel spokeswoman said. Bankruptcy court judges generally like seeing pre-packaged bankruptcy plans that have most if not all creditors on board, which may give the Monarch-led group an advantage in bankruptcy proceedings.

However, some believe Charney has a shot. “Assuming Dov really has the money, and it seems like he does, he should win,” a retail banker said.

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.

Monarch, a New York-based distressed investor, is American Apparel’s biggest bondholder. Other parties include Coliseum Capital Management, Goldman Sachs Asset Management LP and Pentwater Capital Management LP, according to court filings.

Monarch spun off from the Quadrangle Group in 2008. The firm is known for buying the debt of troubled companies, including Hicks Sports Group, the New York Rangers and Dallas Stars Hockey franchise.

Monarch manages about $4.9 billion in nets assets under management. About $3 billion of the AUM is in hedge funds, while the rest is in private equity, separately managed accounts and structured credit funds, a source said.

It’s unclear which funds Monarch used to invest in American Apparel. The New York firm closed its last pool, Monarch Capital Partners III LP, in January 2015 at $1.2 billion, the source said. Fund III had targeted $850 million. Performance data for fund III was unavailable. Lazard was the placement agent, Buyouts reported.

Separately, former Monarch executive Clayton Shumway has joined CVC Capital Partners. Shumway is a managing director with CVC’s business development and investor relation’s team. He joined CVC from Monarch in August.

Calls to Monarch were not returned.

Photo courtesy of American Apparel