AEROPASTLE RESOLVES BANKRUPTCY ISSUE WITH TOP SUPPLIER

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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

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The settlement, which is subject to approval by a judge, ends a dispute between Aeropostale and Sycamore Partners, which is the retailer’s biggest lender and the owner of MGF Sourcing. Photo: Associated Press

By

Lillian Rizzo

Lillian Rizzo
The Wall Street Journal
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May 12, 2016 1:46 p.m. ET

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Aéropostale Inc. AROPQ -2.63 % will start receiving the rest of the inventory it has ordered from MGF Sourcing under a settlement that ends the bankrupt teen-apparel retailer’s feud with one of its largest clothing suppliers.
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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If the agreement is approved by Judge Sean Lane at a May 23 hearing, the final MGF deliveries to Aéropostale stores will start that day, Ms. Marcus said. Once the inventory is delivered and payments made, the companies will break off a relationship that has turned contentious since they signed a 10-year sourcing agreement two years ago.

The settlement followed a heated exchange between Aéropostale and MGF in court papers and during a lengthy first-day hearing.
“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.

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The loan will be up for the court’s approval at the May 23 hearing along with the MGF settlement.
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