Bankruptcy Possible For Delta Apparel
Delta Apparel Inc. still has its going-concern problem.
The activewear and lifestyle apparel firm said it is committed to a plan that would suspend its manufacturing operations in Honduras due to ongoing liquidity challenged, according to a regulatory filing with the Securities and Exchange Commission on Monday. It said the plan follows the “wind-down of the company’s manufacturing operations in Mexico earlier this year,” as well as a decision to no longer emphasize Delta Activewear’s Global Brands channel. Delta also said its still trying to find a buyer for its El Salvador manufacturing operations, which services the Global Brands channel.
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Delta said the suspension of the Honduras operation will impact 2,413 employees for at least 120 days as it explores options for its offshore manufacturing, which “may include a sale or a permanent wind-down” of operations. Restructuring charges connected to the suspension are expected to be incurred beginning in the third quarter of Fiscal Year 2024.
“The company’s deteriorating liquidity position and lack of funding has continued to prevent it from purchasing raw materials necessary to operate its offshore manufacturing facilities and to pay compensation and benefits due to offshore employees,” Delta said in the filing.
Delta’s liquidity issues were disclosed in its second-quarter report filed in May. The filing said Delta was notified in January that “certain suppliers would no longer allow extended credit in amounts or terms to the extent previously allowed,” and that it also was limited in its ability to obtain raw materials from other suppliers. The company said it also is in default of its U.S. revolving credit facility due to non-compliance with certain financial covenants.
Lenders have not sought full payment of the debt, and the quarterly report said Delta and its lenders continue to have talks about how the firm can address regaining compliance over the “next 12 months.” Delta did state that if it can’t address those concerns, “it may seek relief under applicable bankruptcy laws.”
Following the COVID-pandemic, Delta Apparel CEO Robert W. Humphreys in October 2021 had credited nearshore sourcing for the success of its vertically integrated operation. But the liquidity crunch had Humphreys resigning last month at the request of Delta’s independent directors. His departure is set for June 29. Focus Management Group’s Tim Pruban was named chief restructuring officer, and he will be advising Delta on succession planning.