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Aeropostale and MGF Sourcing Call it Quits on Their Relationship

In the throes of bankruptcy, Aeropostale has reached an agreement with its supplier, MGF Sourcing.

The Sycamore Partners-owned vendor and the teen retailer found themselves in a tiff when MGF started seeking stricter payment terms, demanding that Aeropostale pay for product up front instead of in 60-days time.

Aeropostale said the request was a breach of its 10-year contract with the supplier and that the move disrupted some of its supply. MGF maintained that there was no contract breach.

Now, amid Aeropostale’s bankruptcy proceedings, which officially began last week, the battle has come to an end. Under the proposed settlement, Aeropostale will receive the goods it already ordered from MGF and pay the supplier within 14 days of delivery, The Wall Street Journal reported.

Once all remaining already-ordered goods have been delivered and paid for, that will be it for Aeropostale and MGF. The retailer and supplier will part ways just two years into a 10-year sourcing agreement as the ongoing dispute has soured their relations.

According to the Journal, the settlement came after a “heated” exchange between the two parties.

“All I can say is, it’s a lot of interesting issues that could go a lot of different ways,” Judge Sean Lane, who will preside over a May 23 hearing where the agreement will be up for approval, told the Journal. “At least as an initial matter, it’s a very good reason for the parties to try to work this out.”

Sycamore Partners, which owns MGF, also happens to be Aeropostale’s largest lender, holding an 8 percent stake in the company since 2014, when the retailer signed the sourcing deal with MGF.

The Aeropostale-MGF settlement is contingent upon the retailer staying compliant with its bankruptcy financing, in return for which MGF will pull its objection to a $160 million bankruptcy loan Aeropostale secured to help with its financial commitments.

Aeropostale took the next steps in what it called its “ongoing business transformation,” otherwise known as bankruptcy, on May 4 after declining foot traffic and disinterested teens helped fuel three straight years of losses.

The retailer said it will close 113 stores in the U.S. and 41 in Canada, but plans to emerge from bankruptcy with a smaller footprint, improved operations and less expenses within six months.