Bankrupt Aéropostale, Clothing Supplier Reach Settlement
MGF Sourcing will send already-ordered inventory to the retailer under a pact that will dissolve a 10-year supplier agreement
The proposed settlement halts a continuing battle over Aéropostale’s claim that MGF—which is owned by Aéropostale’s biggest lender—imposed stricter payment terms that forced the retailer into its recent filing for chapter 11 bankruptcy protection. MGF had called the allegations “frivolous.”
Now, the proposed settlement will allow the teen apparel retailer to receive the goods it has already ordered from MGF and provides for MGF to be paid within 14 days of delivery, according to Aéropostale attorney Jacqueline Marcus.
Ms. Marcus called the deal, the product of talks over the past two days, “very good news” for the retailer.
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“All I can say is, it’s a lot of interesting issues that could go a lot of different ways,” Judge Lane said on Wednesday. “At least as an initial matter, it’s a very good reason for the parties to try to work this out.”
The settlement is contingent on Aéropostale staying in compliance with its bankruptcy financing package. In return, MGF will withdraw its objection to a $160 million bankruptcy loan provided by Crystal Financial LLC.
Aéropostale filed for bankruptcy last week amid a battle with its private-equity backer, Sycamore Partners—which is Aeropostale’s largest lender and owns MGF.
New York-based Sycamore took an 8% stake in the retailer in 2014 and provided a loan to keep the operations afloat. As part of the deal, Aéropostale signed a 10-year supply agreement with MGF. Sycamore also backs other retailers such as Hot Topic, and owns MGF which manufactures clothing to Aéropostale and other companies.
However, Aéropostale’s financial position continued to deteriorate over the years, thanks in part to declining mall traffic, increasing competition and changes in teen consumer trends.
Aéropostale plans to reorganize its business around its most profitable stores, and Chief Financial Officer David Dick has said in court papers the company intends to save as many jobs as possible.
Write to Lillian Rizzo at Lillian.Rizzo@wsj.com