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Liquidation Looks Likely for Aéropostale

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Aeropostale

The future looks bleak for Aéropostale, following a judge’s decision to allow Sycamore Partners to bid on the bankrupt teen retailer.

The private-equity firm, which loaned Aéropostale $150 million in 2014, is one of the company’s loudest critics, last week telling a New York bankruptcy court judge that the business had wasted millions of dollars going through the Chapter 11 process and pushing for liquidation.

Aéropostale had earlier asked the court to block Sycamore and its affiliates from credit bidding—a right that a secured creditor has in bankruptcy sales which allows them to control the sale of their collateral—but the court denied the request, concluding that there was no basis to “equitably subordinate the term lenders’ claims, limit their ability to credit bid or recharacterize their loans.”

That decision was likely a slap in the face for Aéropostale, which had blamed the Sycamore-affiliated supplier, MGF Sourcing, for forcing it to file for Chapter 11 in May after breaching their 10-year contact. The retailer went so far as to accuse Sycamore of leading a “loan to own” scheme.

Aéropostale’s life now hangs in the balance after Versa Capital, its best shot at survival, did not submit a bid for the business, despite claims that it had been preparing a stalking horse proposal. Bids instead came from Sycamore and liquidators.

An auction is scheduled for Monday. More than 100 of Aéropostale’s 739 U.S. stores and all 41 of its locations in Canada have closed since May. If Sycamore is successful, the retailer’s remaining stores would shutter and more than 10,000 jobs would be lost.

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