Aeropostale to challenge Sycamore's status as creditor

(Reuters) - U.S. teen retailer Aeropostale Inc AROPQ.PK plans to challenge in court private equity firm Sycamore Partners' claims as a creditor in its bankruptcy, according to a transcript from a court hearing held this week that was seen by Reuters.

A customer enters an Aeropostale store in Broomfield, Colorado, United States May 14, 2015. REUTERS/Rick Wilking

The fight between Aeropostale and Sycamore stands out from other bankruptcy cases of U.S. teen retailers, because very few of them triggered litigation. It could also complicate any effort by Sycamore to take over the retailer.

The lawsuit, expected by Friday, would follow an investigation by Aeropostale over the past several weeks into whether Sycamore drove the company into bankruptcy, in part by making the terms of its debt investment in the company in 2014 deliberately onerous.

Sycamore affiliates loaned Aeropostale $150 million in 2014, and, as part of the deal, required that the chain make merchandise purchases from one of Sycamore’s companies, MGF Sourcing. Aeropostale has said that MGF imposed new, burdensome terms on the retailer that precipitated its bankruptcy.

In bankruptcy court in New York on Monday, attorneys for Aeropostale said that they would pursue claims that could dramatically reduce Sycamore’s recovery on its $150 million debt investment. It also intends to challenge Sycamore’s ability to use the money it is owed as credit in bidding for the company in a bankruptcy auction scheduled for next month.

A source close to Sycamore, who asked not to be identified because they were not authorized to speak publicly to the media, said the firm does not believe Aeropostale’s investigation uncovered any support for the claims the retailer plans to file. Sycamore declined to comment.

Sycamore is investigating its own potential claims against directors and management of Aeropostale for concealing financing information and breaching their fiduciary duty, the person said.

“This is just a tactic by Sycamore to distract attention from their own malfeasance,” said a spokesperson for Aeropostale.

Aeropostale, when it asked a bankruptcy court judge for permission to conduct the investigation into Sycamore’s investment in May, pointed to statements made by Sycamore Managing Director Stefan Kaluzny that it says suggest he had been plotting its bankruptcy since 2013.

Aeropostale is one of at least five teen retailers, including Pacific Sunwear of California Inc PSUNQ.PK, Wet Seal LLC and Quiksilver Inc, that have filed for bankruptcy in the past two years, as shoppers shift away from malls toward online shopping.

Reporting by Jessica DiNapoli in New York