American Apparel’s biggest bondholder is hungry for a sale

American Apparel’s biggest bondholder wants to serve up the company like a snack — a Twinkie, you might say.

Monarch Alternative Capital — the New York hedge fund that helped force the liquidation of Twinkie maker Hostess Brands in 2012 — has been working behind the scenes to force a sale of American Apparel and scrap the clothing brand’s Los Angeles factory, sources told The Post.

American Apparel’s board, which ousted CEO Dov Charney in a surprise coup June 18, has denied it’s considering a sale of the firm and said it won’t veer from the “Made in the USA” policy established by Charney.

But sources said Monarch — whose standoff against Hostess labor unions spurred more than 18,000 layoffs and a sale of its snack brands to a Mexico baking conglomerate — has been aggressively lobbying John Luttrell, the American Apparel exec who has replaced Charney as interim CEO.

A few weeks before Charney’s ouster, sources said Luttrell made a trip to New York and met with bondholders led by Monarch. According to a source close to Charney, the meeting was held without Charney’s knowledge.

At the meeting, Monarch-led bondholders discussed major strategic moves with Luttrell, who was chief financial officer at the time, including licensing out the racy clothing label to a Chinese manufacturer, according to sources close to the situation.

With Luttrell now at the helm, sources said investors working with Monarch in recent days pitched Luttrell on a licensing and distribution deal with Hong Kong-based China Dongxiang, a deep-pocketed retailer.

On Wednesday, American Apparel officials declined to comment on questions about Monarch.

Reached Wednesday afternoon, a spokesman for Monarch said the firm “supports a ‘made-in-America’ strategy” for American Apparel, and said Monarch execs have had “no discussion with American Apparel or anyone else about an outsourcing strategy.”

The spokesman didn’t comment on whether members of a Monarch-led bondholder group had held such discussions.

Other sources, however, said Monarch has been pressing American Apparel to sell itself and ditch Charney’s strategy to produce clothing in the US since early this year, when it began enlarging its ownership to two-thirds of the company’s $214 million in senior secured debt.

Noting that its two-thirds stake would give it control of American Apparel in a bankruptcy scenario, insiders say Monarch recently has been looking to line up potential acquirers for the brand such as VF Corp., the maker of Lee and Wrangler Jeans; and Iconix Group, a licensing company whose labels include Joe Boxer, London Fog and Sharper Image.

Sources said Monarch began peppering Luttrell and Charney with phone calls after the retailer disclosed last fall that glitches at a new factory were spurring unexpected losses.
“I’m rooting for you, Dov,” a Monarch exec told Charney after grilling him about the business, according to a source close to Charney.

Insiders say Monarch execs also have been in contact with real-estate brokers to determine how much cash could be reaped by exiting American Apparel’s factory in downtown Los Angeles, which employs about 5,000 workers. An exit of the factory’s below-market lease could spur a cash windfall of more than $50 million, by some estimates.

Recently, Monarch execs called American Apparel board members to express their approval of Charney’s ouster, sources said.

Meanwhile, sources said Monarch has expressed alarm about the deal Charney struck last week with New York investment firm Standard General LP. Charney, who has amassed a 43 percent stake through a loan from Standard General, is angling to retake control of the company’s board by getting the support of a shareholder majority.

Standard General has pledged to keep the Los Angeles factory open and central to American Apparel’s strategy, sources said.
“[Monarch is] very upset because this kills the quick profits they can make with Charney out of the picture,” according to a source.

Monarch has amassed much of its debt position at prices around 80 cents on the dollar, according to financial sources. Unusually favorable terms on the debt could drive their value as high as 140 cents on the dollar if the company were sold, the sources said.

Last week, American Apparel’s board said it has tapped investment bank Peter J. Solomon as an adviser to ensure it has enough liquidity for upcoming debt obligations, and reiterated that it isn’t pursuing a sale.

According to several sources, American Apparel execs had met in January with Peter J. Solomon bankers, who told them that the company could attract the interest of at least a dozen prospective acquirers if Charney left the company.

Charney wasn’t informed about the meeting, according to a source close to Charney.