Aeropostale Cleared to Seek Bankruptcy Rescue From Versa Capital

  • Retailer, lenders resolve fight that threatened potential sale
  • Company, Versa seek to reach ‘stalking horse’ deal by Aug. 11

Aeropostale Inc. settled a dispute with lenders that threatened to scuttle a potential bid from a Versa Capital Management unit to buy the teen-clothing chain out of bankruptcy.

Versa Capital Fund III is working with Aeropostale to make a binding opening offer for its assets at an auction. The retailer won court approval Monday to pay expenses the Versa affiliate has incurred preparing the so-called staking horse bid, clearing the way for the companies to possibly reach a deal on the offer by Aug. 11. Competing bids would be due by Aug. 18 and the auction would be held Aug. 22.

Lenders led by Sycamore Partners, which may also try to bid, had objected to paying Versa as much as $500,000 for its expenses, according to court papers. But Sycamore dropped that opposition after working out a compromise over where the money would come from, lawyers for the retailer and Sycamore said Monday at a hearing in Manhattan federal court.

“Absent an agreement, I’d have a whole host of things I’d be talking about,” U.S. Bankruptcy Judge Sean Lane said.

Versa, which reorganized its Eastern Mountain Sports chain in bankruptcy this year, would keep about 500 Aeropostale stores open and save thousands of jobs if it wins the auction, the New York-based teen retailer said.

The deal to reimburse Versa doesn’t resolve a bigger fight between Aeropostale and Sycamore over whether the private equity firm can bid at auction with debt instead of cash. That dispute is scheduled to be resolved by Lane after a trial.

The case is In re Aeropostale Inc., 16-11275, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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