Sunday, July 24, 2016

Aeropostale Experiences Noxious PEU

Bankrupt teen retailer Aeropostale may rue the day it partnered with private equity underwriter (PEU) Sycamore Partners.  In 2013 Sycamore purchased nearly 8% of the company as an activist investor.  Aeropostale then borrowed $150 million from Sycamore in 2014.  This loan gave Sycamore two board slots and committed Aeropostale to use Sycamore affiliate MGF Sourcing.  At the time Bloomberg reported:

The financing agreement also includes a strategic partnership with MGF Sourcing, an affiliate of Sycamore, that will diversify Aeropostale’s clothing production. 
Aeropostale's relationship with MGF Sourcing deteriorated according to Bloomberg's piece from March 2016:

The dispute with MGF is adding to Aeropostale’s woes. When Sycamore helped connect the two companies, it was seen as a way to diversify Aeropostale’s clothing production. But the retailer said on Thursday that MGF is disrupting its supply of merchandise and violating the terms of their agreement. The problem could widen losses by $5 million to $8 million if shipping delays continue, Aeropostale said.
Sycamore's Stephen Kaluzny unloaded 6.1 million shares of Aeropostale stock in February for 17 cents per share.

Aeropostale declared bankruptcy in May and asked the court for permission to investigate the role Sycamore Partners playing in Aeropostale's demise. Sycamore bought Aeropostale stock through Lemur LLC and provided debt financing via Aero Investments LLC.

While Aeropostale searches for a white knight to take it out of bankruptcy the company fired back at Sycamore.  Reuter's reported:

Bankrupt U.S. teen retailer Aeropostale (AROPQ.PK) filed a motion against its lender, private equity firm Sycamore Partners, in bankruptcy court late on Friday, accusing it of plotting a "loan to own” scheme to push the chain into bankruptcy. Aeropostale asked a U.S. bankruptcy court judge to bar Sycamore from using the $150 million it is owed as credit to bid on the company, which is up for sale in a court-supervised auction. Aeropostale also wants the judge to reduce how much Sycamore would be repaid on its loan.
Aeropostale wouldn't be the first PEU affiliate taken over by their former savior.  The Carlyle Group back doored Mrs. Fields and Brintons.  Aeropostale finds itself in a special situation, one that attracts  financial hyenas