UPDATE: Aeropostale challenges Sycamore's creditor claims in court

Dive Brief:

UPDATE: On Friday, bankrupt teen apparel retailer Aeropostale filed a lawsuit against Sycamore Partners (the private equity firm that acquired 8% of the company in 2013) in the United States Bankruptcy Court for the Southern District of New York "to, among other things, preclude Sycamore from credit bidding its claims to purchase the assets of the company," an Aeropostale spokesperson confirmed to Retail Dive in email.
UPDATE: Aeropostale is continuing to pursue a Chapter 11 bankruptcy plan and sale of its assets, and is "actively speaking with a number of potential buyers interested in maintaining the Aeropostale brand and operating the business on a go-forward basis," the spokesperson said. All interested buyers must submit their offers by Aug. 18 and, if more than one offer is received, an auction will be held Aug. 22, according to the spokesperson.
Sycamore in 2014 provided a $150 million loan to Aeropostale with the stipulation that the retailer source much of its goods from Sycamore-owned MGF Sourcing, a clothing manufacturer and supply chain management company. Aeropostale claims it has unearthed evidence that MGF’s terms were intentionally onerous. Sycamore hasn’t officially commented, but sources there told Reuters there’s no such evidence and suggested that the firm might file its own claims.

Dive Insight:

Bankruptcy proceedings often hold plenty of contentiousness and disagreement, but litigation like this is unusual. Aeropostale is getting ready to allege in court that Sycamore has been plotting its downfall since it took that big stake in 2013.

Aeropostale insists it has the evidence. Sycamore for its part says it would like to see exactly what that evidence entails. That’s the kind of detail that will likely emerge in court.

Attorneys for Aeropostale say they’ll pursue claims that could limit Sycamore's recovery of its $150 million loan and its capacity to use that money to bid on the retailer at a bankruptcy auction.

For the retail sector, this is a fair amount of intrigue. But, ultimately, it’s unclear how much even a legal win helps Aeropostale, beyond recovering some of its debt or avoiding ownership it doesn’t favor.

Aeropostale filed for Chapter 11 bankruptcy protection in May. R eports from earlier this week indicate the retailer is unlikely to reorganize under Chapter 11 protection and is preparing to sell its assets.

“Reorganization on a standalone basis is not feasible,” Aeropostale stated in court papers filed July 15, adding it will seek a “stalking horse” to make the lead bid at an auction scheduled for next month. The proceeds of any sale will go to Aeropostale's creditors.

Experts have told Retail Dive that Aeropostale sealed its own fate by hewing too closely to trends set by American Eagle Outfitters and Abercrombie & Fitch, the so-called "other two As" synonymous with teen apparel, and failed to develop a distinct vision.

“Aeropostale has always been the weak link in the chain," Columbia University retail studies expert Mark Cohen recently told Retail Dive. "They never had a signature collection in terms of denim like Eagle, and they never had the presence within the consumer space like Abercrombie. It’s all about low price, and they can’t protect themselves from themselves. The lights start to dim and they go out, and they don’t come back on.”