Taps for Bugle Boy Industries
Perry Ellis makes offer for trade name, licensing
Bugle Boy Industries Inc., the Simi Valley, Calif.-based apparel company perhaps best known for its ’80s-era parachute pants, is being liquidated in the wake of an emergency Chapter 11 bankruptcy filing. Its creditors may be owed more than $100 million.
In step one of that liquidation, Miami-based Perry Ellis International has signed a letter of intent to acquire Bugle Boy’s trade name and other intellectual property, its wholesale operations, including its licensing operations, and certain inventory and accounts receivable. An Ellis statement said the “transaction is expected to be accretive to earnings” and will be financed “through the issuance of additional debt.” Ellis intends to keep the Bugle Boy trademarks and its current licensee arrangements “as is,” according to an Ellis spokesperson. The deal, for a reported $54 million, will require Bankruptcy Court approval.
One of the motions that Bugle Boy has filed in court asks for the appointment of a liquidator for the 216 retail stores that it operates in 40 states. Bugle Boy’s expectation, outlined in court documents, is that at a mid-February hearing one or more agents will be authorized to hold store-closing sales, selling merchandise and, eventually, even the stores’ fixtures, furnishings and equipment. Merchandise to be sold at these going-out-of-business sales is valued at between $120 million and $144 million, according to a Bankruptcy Court filing. The store-closing sales are expected to continue through June 15, 2001, and are expected to net, after expenses, in excess of $30 million from merchandise alone, according to the filing.
Bugle Boy’s amassed debt may seem immense, but for its various creditors the crucial question is not how much the privately held company owes as what the equation is between that debt and its assets.
“I don’t know what the security behind that debt is,” said Robert Ezra of the Encino, Calif.-based law firm Ezra Brutzkus Gubner, who represents a consortium of Turkish manufacturers that claim Bugle Boy owes them more than $2 million, including money owed for apparel still under order or in transit. Ezra recently filed suit against Bugle Boy on behalf of the Turkish companies in California Superior Court, alleging breach of contract and unjust enrichment, and calling for reclamation of recently shipped goods. “Garment companies borrow on asset-based lending,” Ezra said, so whether that reported $100 million Bugle Boy debt turns out to be “a lot or a little” depends on “what the collateral was.”
Because Bugle Boy’s initial bankruptcy filing was made on an emergency basis, Ezra added, the various supporting documents that would tell him and the company’s creditors what the status and value of Bugle Boy’s assets are have not yet been filed. Filing of those documents is expected sometime during the week of Feb. 12, according to Ezra.
The company’s largest secured creditors, a syndicate headed by Foothill Capital Corp. and General Electric Credit Corp., are owed approximately $75 million of that $100 million; at least 20 additional unsecured creditors, including overseas manufacturers and suppliers, among them the Turkish manufacturers, are owed the balance.
Among the largest unsecured creditors are: Taipei-based Nien Hsing Textile Co. and Chao Hsing Textile Co., alleging debts of $11.2 million and $1.9 million, respectively; Hong Kong-based Brighten Garment Ltd., alleging a debt of $1.6 million; and Turkish-based SMS Tekstil Urunleri San, alleging a debt of $1.65 million. SMS Tekstil represents a consortium of Turkish vendors that manufactured and shipped various garments, mostly kidswear, for Bugle Boy, Ezra said.
In the week prior to the Feb. 2 bankruptcy filing, Dr. William C.W. Mow, the company’s sole owner, who founded Bugle Boy in 1976, resigned his management positions as chairman and chief executive officer, and he and his wife resigned from the company’s board of directors. Mow, who has been widely regarded as an exemplar of Asian-American entrepreneurial success, was born in Hangchow, China, and holds a Ph.D. in electrical engineering from Purdue University.
Mow is also, according to a court filing, one of the company’s secured creditors, owed a “combined principal amount of $7 million.”
The company has appointed an interim CEO, Kenneth Henry, a principal of the BDO Seidman, LLP, accounting firm. In a court filing, Henry, who has 22 years experience as a financial adviser and interim officer to underperforming organizations, is characterized as a “turnaround professional having the expertise necessary to maximize the value of [Bugle Boy’s] assets.”
Vested in the new CEO is the authority both to sell Bugle Boy’s wholesale business and to conduct going-out-of-business sales at the company’s retail stores, according to the court filing.
The Bugle Boy Bankruptcy Court filing also enumerates several factors for the company’s financial troubles, including: better financed competitors, increased foreign competition, the “industry’s move toward private label merchandise and the closure and consolidation of some of [Bugle Boy’s] largest customers,” as well as the company’s “recent attempts to expand its retail operations beyond factory outlet channels and into traditional shopping malls [that] have proven much less successful than its traditional wholesale business and factory outlet operations.”
The company’s high-water mark, in terms of apparel cachet, passed by the mid-1980s. But a compelling print and TV advertising campaign, featuring beautiful young women approaching men and avidly asking, “Are those Bugle Boy jeans you’re wearing?” put sizzle behind Bugle Boy’s expansion plans in the early 1990s and beyond. Bugle Boy’s sales hit the $500 million mark by 1990, and it built a retail and outlet store network that at one time totaled more than 300 stores, but has since shrunk to approximately 216 stores operating in 40 states. Bugle Boy also has broadened its apparel offerings in recent years to include juniors and childrenswear.
Since the Chapter 11 filing, the expectation has been that Bugle Boy would not attempt to reorganize under bankruptcy protection and continue doing business, but rather that it would sell off its trademarks and liquidate its other assets to pay back creditors. That expectation is being realized by the agreement with Perry Ellis.
“I believe that the company will be liquidated in an orderly fashion to achieve the largest possible return,” Ezra said. When that happens, it will pull the final stitch out from one of the largest privately held apparel companies in the United States and unravel one of Southern California’s highest-profile apparel success stories.
As of Feb. 1, Bugle Boy’s apparel was available at more than 7,000 department stores. The company had 3,796 employees, 454 of whom were salaried, with the remainder receiving hourly wages; an undetermined number of these employees have by now been laid off. How many employees will be retained through the prospective going-out-of-business sales is unknown as well. By press time, neither Bugle Boy’s interim CEO nor its bankruptcy attorney had replied to requests for comment.