True Religion Apparel Inc. filed for bankruptcy this year.

True Religion Apparel Inc. filed for bankruptcy this year. Photo by Ringo Chiu.

Impresa Aerospace is the latest of more than a half-dozen large companies in Los Angeles County that have filed for bankruptcy this year. 

Like most of those businesses, the Gardena-based parts manufacturer for commercial aerospace and defense markets has struggled to cope with a drop in revenue related to the pandemic.

Adding gasoline to the fire was the company’s exposure to Boeing’s troubled 737 MAX program — its largest source of revenue.

Founded in 1973 as Venture Aircraft, Impresa Aerospace had  a “fundamentally sound business and a strong, established customer base, (but the) two significant events have created a perfect storm” and necessitated filing, Chief Executive Steven Loye said in a statement filed with the U.S. Bankruptcy Court for the District Of Delaware. 


Impresa Aerospace generated $49 million in revenue last year and employed more than 200 workers. Despite a $2.1 million Paycheck Protection Program loan, the company had to lay off more than a quarter of its workforce this year.


Impresa Aerospace is now looking at a relatively quick exit from bankruptcy. Westwood-based private equity firm Twin Haven Capital Partners, its majority owner, put up a stalking horse offer to buy the company for $10 million unless another buyer surfaces by Dec. 18. 


Several other local companies are expected to be getting a fresh start by year’s end, as well. They all hail from industry sectors that are the biggest contributors to this year’s surge in Chapter 11 filings — oil, retail and entertainment. 


According to the UCLA-LoPucki Bankruptcy Research Database, which tracks nationwide bankruptcies of large public companies, 12 cases filed this year are from the oil and gas industry, six concentrate on apparel and accessories, and three are related to entertainment.

Driven by pandemic


Westchester-based Global Eagle Entertainment Inc. filed for Chapter 11 bankruptcy on July 22. Global Eagle generates revenue by licensing and providing media and entertainment content to airlines and cruise ship operators, along with satellite-based internet access. 


A pandemic-related decline in the demand for travel forced its customers to temporarily cease or reduce operations, which in turn reduced the need for Global Eagle’s services. 


The company’s major creditors, led by Apollo Global Management Inc., put up a stalking horse bid to purchase nearly all the heavily indebted business’ assets for $675 million. 


The deal will reduce the company’s total debt load by approximately $475 million. Other potential buyers had until Oct.5 to submit a bid, which would have triggered an Oct. 9 auction. Because no other bids were received by the deadline, a hearing to approve the sale of the assets to Apollo has been scheduled for Oct. 15.


On the apparel front, True Religion Apparel Inc. is expected to emerge from bankruptcy this week. The company filed for Chapter 11 protection on April 13, after amassing approximately $138.5 million in secured debt and another $44 million it owed to unsecured creditors. 


At the time of filing, it had 87 stores and 1,010 employees, of which 427 were full-time workers. The apparel retailer’s confirmation hearing was held on Oct. 5, paving the way for True Religion to resurface with more than 50 stores and some 576 employees. Its lender Farmstead Capital Management will retain a 88% share of the company.


A reorganized True Religion, which recently moved its headquarters from Manhattan Beach to Gardena, is valued between $117 million and $125 million, The company is projected to generate $35.7 million in gross revenue for its fiscal 2021-2022, according to court documents.

Acquisition opportunities


Another apparel-maker, downtown-headquartered Lucky Brand Dungarees, filed for Chapter 11 bankruptcy protection on July 3, citing “a combination of the economic impact of the global Covid-19 pandemic, which resulted in extended closures of its retail stores, and limited liquidity, which diminished access to new inventory from its vendors,” according to the documents filed with the U.S Bankruptcy Court in Delaware. 


SPARC Group in New Jersey, which is owned by Indianapolis-based Simon Property Group Inc. and New York-based Authentic Brands Group, put up a stalking horse bid and acquired Lucky’s assets for $140.1 million. 


SPARC is now overseeing all sourcing, product design and development, wholesale, operations of Lucky Brand’s 175 North American stores and its ecommerce business while Authentic got the rights to Lucky Brands’ intellectual property and will oversee all licensing partnerships, new business and brand development,” according to court documents.


“Building on the foundation we’ve created with Aéropostale and Nautica, we are excited to partner with ABG to expand and enhance SPARC through Lucky Brand,” SPARC Chief Executive Marc Miller said in a statement. 


“This acquisition will diversify our growing brand platform, which includes approximately 750 SPARC-owned and operated locations in the U.S., plus ecommerce and wholesale that collectively drive over $2 billion in retail sales annually,” he said.


SPARC and Authentic, together with Glendale Galleria owner Brookfield Property Partners, also poached Lincoln Heights-based Forever 21 Inc. out of bankruptcy court. The $81 million deal, announced in February, gave SPARC control over retailer’s inventory, leases and intellectual property.

Elevated debt levels’


California Resources Corp., one the largest oil and gas producers in California, filed for Chapter 11 bankruptcy protection on July 15. It contended with “elevated debt levels … depressed earnings, as well as low oil prices,” according to Moody’s Investors Service. 

  
The Santa Clarita-based company reported that it will be able to eliminate more than $5 billion of its $6.1 billion debt load and turn over its assets to its lenders. It also secured $1.1 billion in debtor-in-possession financing, with a maturity date of Jan. 15.
The confirmation hearing is scheduled for Oct. 13, at the U.S. Bankruptcy Court for the Southern District of Texas Houston Division.


Another local company seeking relief in Texas is California Pizza Kitchen Inc. The fast-casual restaurant chain, which filed for Chapter 11 protection on July 29, cited several factors that contributed to its decision to file for bankruptcy protection, including the government-mandated closure of indoor dining, which represents about 78% of its net sales. 


The restaurant chain also contended with liquidity issues and was actively looking for a buyer. It entered into a restructuring support agreement with its senior lenders — a deal that will equitize and reduce most of its long-term debt, from approximately $403 million to $174 million and include $46.8 million in new financing to support ongoing operations. 


CPK also said it’s moving its headquarters from Playa Vista to Redondo Beach. A confirmation hearing is scheduled for Oct. 29. 


Hotels, Restaurants Could Be Next In Line For Bankruptcies  

 There were 747 Commercial Chapter 11 filings recorded nationwide in September, a 78% increase over the same month in 2019, according to New York-based research firm Epiq Systems Inc.

With a total of 5,529 filings during the first three quarters of 2020, Chapter 11 commercial filings are up 33% over the same period last year.

“These commercial filings are primarily small businesses that do not have access to capital or stimulus,” Deirdre O’Connor, managing director of corporate restructuring at Epiq, said in a statement.

“Unfortunately, those bankruptcies will continue to rise in the current economic environment. For the largest companies, opportunistic investors are providing much-needed capital to supplement the lending capabilities of more constrained traditional banks. However, the most over-leveraged distressed companies could succumb to a formal restructuring due to lack of credit support and overall sector decline,” she added.

Industry experts anticipate the second wave of bankruptcies will include more companies involved in commercial real estate and hospitality.

“I got a call over the weekend from a company that manages some hotel properties,” said John Tedford, partner at Danning Gill Israel & Krasnoff in Century City. “The hotel space is really hurting. They aren’t receiving the revenues that they need from their hotels … and their lenders have decided enough is enough. I’m guessing that that case will get filed in and about in a couple weeks in Delaware.”

Tedford added that restaurants are also in a vulnerable position, but many may disappear without filing for bankruptcy.

“The restaurants generally are just leasing, and I think a lot of them, it’s better just to shut down, so we won’t necessarily see bankruptcy filings for them,” Tedford said. “I’m surprised that we haven’t seen more restaurants closed permanently. I don’t know how they can go this long without having sustained revenues at high levels. It doesn’t look like California is just going to be allowing full occupancy anytime soon.”

The commercial real estate industry is also dealing with reduced demand for office space due to mandatory and voluntary work-from-home orders. Only 25% of workers nationally have returned to the office, according to a presentation put on by American Bankruptcy Institute during its virtual conference Insolvency 2020.

“Everyone is working from home, and I wish I had a dollar for every lawyer that said to me, ‘We don’t need the square footage that we have,’” said Matthew Bordwin, managing director with Keen-Summit Capital Partners in Melville, N.Y., who was  part of a panel discussing commercial real estate and Chapter 11 bankruptcies. “We are seeing these mounting conversations in the nondistressed world, of folks who occupy large square footage of office space, trying to figure out what to do looking forward — (whether they can) give back space and trade it for (a longer-term lease) and reduced occupancy costs — because no matter what’s going on, unless you’re Facebook or Google, basically nobody else is looking to expand.

“And in the big cities in particular where people are less inclined to go into offices, where there are high-rise buildings, that is going to have dramatic impact on real estate values going forward because rents will be coming down; there will be less occupancy,” said Bordwin, who focuses primarily on real estate analysis, real estate acquisitions and dispositions, lease modifications and terminations, and corporate finance and capital market services. “We are seeing on the investment side of our house, lenders starting to bring out to market some of their loans that they are interested in selling, and the difference between the bid and the ask is pretty significant.”

For reprint and licensing requests for this article, CLICK HERE.