Dov Charney filed with the U.S. Bankruptcy Court an objection to American Apparel’s motion for an exclusivity extension and a cross-motion for an order terminating the Debtors’ exclusivity and adjourning the confirmation hearing scheduled for January 20, 2016. Charney asserts, “It is necessary and appropriate to unlock American Apparel’s potential value, and to fairly allocate it, by terminating the Debtors’ exclusivity immediately.”
Charney continues, “Under the Alternative Offer, the Company’s pre-petition senior lenders will receive a recovery in face amount of securities of over 115% of the principal about of their claims ($206 million), versus 33% to 77% under the debtors plan, assuming the low and high values of the debtor’s valuation range. The Alternative Offer represents a value for Bondholders far above what they could be compelled to accept in a cram-up plan. Again the beauty of an RSA-plus-exclusivity is that it’s a means for senior creditors to earn outsized, equity-like returns….Unsecured creditors’ only choice to date hasn’t been much of a choice at all: take this Plan, or face a possible liquidation and existential harm to their own businesses. The Committee – armed with very capable legal and financial advisors – invested considerable effort and diligence in reviewing the current Plan and its underlying business and projections, and included a letter in the solicitation package strongly recommending to general unsecured creditors that they reject the Plan. Precisely because Mr. Charney succeeded in growing such a large and unique American textile manufacturer, creditors likely felt cornered: rejecting a single, no-choice Plan could have spelled doom for them – there simply aren’t other U.S. customers or prospects to try to fill such a hole.”
The motion continues, “To address the funding a competing plan process, Mr. Charney believes that the Alternative Offer, through its investors, will meet this critical financing need through an offer of an additional DIP facility sufficiently sized to permit a competing plan solicitation process….The program to oust Mr. Charney was a scheme carried out over a process that ran from as early as January 2014 through December 2014. The story is rife with deception and misrepresentations, but one set of action by the Board is so remarkable that it remains perhaps the foremost example of the lengths the Company’s Board and management have gone to force Charney out. This sheds considerable light on the kind of animus the Company has for Mr. Charney, and thus their unwavering devotion to keeping him out at all costs….Termination of exclusivity, or an award of co-exclusivity, will not prejudice stakeholders. These cases are relatively young, only a little over 90 days in administration. With adequate DIP funding, and a quick reset of the solicitation process, the cases can still be concluded by the Spring of 2016.”
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