8-K: Delta Apparel and Subsidiaries File for Chapter 11 Bankruptcy, Salt Life Assets to be Sold

Delta Apparel, Inc. and its subsidiaries have filed for Chapter 11 bankruptcy and entered into an asset purchase agreement to sell the Salt Life brand assets for approximately $28.03 million.

Summary

• Delta Apparel, Inc. and its domestic subsidiaries, including Salt Life Beverage, LLC and Salt Life, LLC, have filed for Chapter 11 bankruptcy.
• The company will continue to operate as a debtor-in-possession while pursuing a structured sale of its assets.
• A senior secured debtor-in-possession financing arrangement with Wells Fargo is being sought to fund operations during the bankruptcy.
• Prior to filing for bankruptcy, Delta Apparel and Salt Life entered into an Asset Purchase Agreement with FCM Saltwater Holdings, Inc. for the sale of Salt Life branded products assets for approximately $28.03 million in cash.
• The purchase price is subject to adjustments based on final net accounts receivable and inventory calculations.
• FCM Saltwater Holdings, Inc. is expected to be designated as the stalking horse bidder, with the sale subject to higher bids at an auction.
• If FCM Saltwater Holdings, Inc. is not the successful bidder, they may be entitled to a break-up fee of approximately 3% of the purchase price plus expense reimbursement up to 1.5% of the purchase price.
• The bankruptcy filing triggered an event of default under the company's existing credit agreement, making all outstanding amounts immediately due and payable, though enforcement is stayed due to the bankruptcy.
• Nancy P. Bubanich resigned as Vice President, Chief Accounting Officer, and Treasurer, effective July 26, 2024.
• Glenda E. Hood and Sonya E. Medina resigned from the Board of Directors, effective June 30, 2024 and June 29, 2024 respectively.
• Trading in Delta Apparel's common stock is highly speculative and may result in a complete or significant loss for shareholders, with delisting from the NYSE American expected.

Sentiment

Score: 2

Explanation: The document indicates a very negative situation with a bankruptcy filing, potential shareholder losses, and delisting. The asset sale is a positive but is a result of the negative situation.

Positives

• A stalking horse bidder has been secured for the sale of Salt Life assets, providing a baseline for the sale process.
• The company is seeking debtor-in-possession financing to continue operations during the bankruptcy process.
• The asset purchase agreement includes a break-up fee and expense reimbursement for the stalking horse bidder if they are not the successful bidder.

Negatives

• The company has filed for Chapter 11 bankruptcy, indicating significant financial distress.
• The bankruptcy filing triggered an event of default under the company's credit agreement.
• Key officers and directors have resigned, potentially disrupting operations.
• Shareholders are warned of potential significant losses and delisting of the company's stock.

Risks

• Trading in the company's common stock is highly speculative and may result in a complete or significant loss for shareholders.
• The company's stock is expected to be delisted from the NYSE American.
• The sale of assets is subject to higher bids at an auction, and the stalking horse bidder may not be successful.
• The bankruptcy process is complex and may result in unexpected outcomes.
• The company's ability to continue operations depends on securing debtor-in-possession financing.

Future Outlook

The company expects to continue operating as a debtor-in-possession while pursuing a structured sale of its assets. The company also expects its common stock to be delisted from the NYSE American.

Management Comments

• The Company cautions that trading in the Company's common stock and other securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.
• The Company expects that holders of shares of the Company's common stock will experience a complete or significant loss on their investment, depending on the outcome of the Chapter 11 Cases.

Industry Context

The bankruptcy filing and asset sale reflect challenges in the apparel industry, potentially due to changing consumer preferences, increased competition, or economic pressures. The sale of the Salt Life brand suggests a strategic shift to focus on core operations or to liquidate assets to satisfy creditors.

Comparison to Industry Standards

• The filing for Chapter 11 bankruptcy is a significant event, indicating financial distress that is not uncommon in the apparel industry, particularly for companies facing declining sales or high debt loads.
• The sale of assets through a bankruptcy process is a common strategy for companies seeking to maximize value for creditors.
• The use of a stalking horse bidder and break-up fee is a standard practice in bankruptcy sales to encourage competitive bidding.
• Comparable companies that have faced similar challenges include those that have undergone restructuring or liquidation, such as retailers that have struggled with changing consumer habits and online competition.
• The expected delisting from the NYSE American is a typical consequence of bankruptcy filings, as it reflects the company's inability to meet listing requirements.

Management Changes

Legal Proceedings

• Delta Apparel, Inc. and its subsidiaries have filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware.

Stakeholder Impact

• Shareholders are likely to experience a complete or significant loss on their investment.
• Employees may face uncertainty regarding their employment status.
• Creditors will be impacted by the bankruptcy proceedings and the sale of assets.
• Customers may experience changes in the availability of products and services.

Next Steps

• The company will seek approval of a debtor-in-possession financing arrangement.
• The company will pursue a sale of its assets through a competitive bidding process.
• The company will seek Bankruptcy Court approval for the asset purchase agreement and bidding procedures.
• The company will continue to operate as a debtor-in-possession during the bankruptcy process.

Key Dates

Keywords

bankruptcy, chapter 11, asset sale, Salt Life, debtor-in-possession, stalking horse, restructuring, apparel, financing, delisting