On 1 July, the US stock exchange (NYSE American) announced it is starting its delisting proceedings for Delta Apparel with trading in the company's common stock being suspended immediately.
Earlier that day Seeking Alpha announced the company's shares had fallen by a third (33%) in premarket trading to $0.39 following its bankruptcy and noted its "apparel stock once traded in the $30s".
On 30 June Delta Apparel and its domestic direct and indirect subsidiaries, including its Salt Life Beverage and Salt Life brands, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
Prior to its Chapter 11 filing, it entered into an asset purchase Agreement with FCM Saltwater Holdings, Inc., to acquire the marketing, sourcing, licensing, and selling of its Salt Life branded products for a total purchase price of approximately $28.03m in cash.
The purchase price is subject to adjustment after closing of the Salt Life transaction based on final net accounts receivable and certain inventory calculations.
Upon bankruptcy court approval FCM Saltwater Holdings, Inc., is expected to be designated as the “stalking horse” bidder in connection with a sale of the Salt Life Assets under section 363 of the Bankruptcy Code.
The transaction will be conducted through a Bankruptcy Court-supervised process pursuant to Bankruptcy Court-approved bidding procedures and is subject to the receipt of higher or better offers from competing bidders at an auction, approval of the sale by the Bankruptcy Court, and the satisfaction of certain conditions.
The company has said it will continue to operate its businesses normally as a debtor-in-possession and pursue a structured sale of its assets pursuant to one or more competitive bidding processes or other strategic arrangements involving such assets.
It has also lined up Chapter 11 financing with Wells Fargo Bank and its other existing lenders.
Why has Delta Apparel filed for bankruptcy?
It filed for bankruptcy with $337.8m in assets and $244.5m in total debt with an increase in cotton prices and other raw materials contributing to its financial troubles, according to Bloomberg.
GlobalData retail analyst Neil Saunders told Just Style last month when bankruptcy was already a real possibility that its main problem was demand for many of its products had declined steeply.
He explained: “The retailers it sells to via wholesale have cut back on inventory and orders as customers have reduced buying activity. This has put the squeeze on Delta. Its direct-to-consumer businesses, including Salt Life, have performed a little better but now even these seem to be suffering from deterioration. All of this has pushed Delta into loss making territory. The problems are likely fixable with time, but the question is whether Delta has enough time to enact a turnaround.”
The company reported a challenging start to FY24 with a decline in net sales and operating income during the first quarter which it attributed to “uniquely unfavourable market dynamics”.
Losses widened in the second quarter as sales sank in both the Salt Life Group and the Delta Group segments.
Saunders also noted the group was in a "financial mess" and "struggling to maintain liquidity".
He shared there was talk of suppliers refusing to provide it with traditional credit terms for its supply of raw materials. Plus, he pointed out the company was "default on several loan covenants" before adding: "All of this points to a company running out of options".
