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Mossimo Strikes Payment Deal, Avoids Bankruptcy

Retail: Move will allow Irvine clothing designer to stay in business until arrangement with Target kicks in next year.

July 26, 2000|LESLIE EARNEST | TIMES STAFF WRITER

Struggling sportswear designer Mossimo Inc. managed to sidestep bankruptcy Tuesday after striking a deal to pay off part of its debts.

The settlement apparently will allow Mossimo to stay in business, albeit with a skeleton staff, while it waits for a crucial licensing arrangement with Target Stores to take effect next year. Target will become the exclusive retailer of Mossimo sportswear, guaranteeing Mossimo royalties of about $27.8 million in the first three years.

Founder Mossimo Giannulli, watching intently from the front row during the hearing, flashed a brief smile after U.S. Bankruptcy Court Judge Lynne Riddle approved the agreement.

While Giannulli declined to comment after the hearing, an attorney for three creditors said they were satisfied with the settlement, which gives them 35 cents on the dollar.

The trio of Los Angeles-area creditors in May filed a petition that sought to force the struggling designer into bankruptcy, claiming Mossimo owed them about $650,000. Since then, however, the company has settled with most of its creditors, including the three firms that filed the involuntary bankruptcy petition--Pacific Apparel Resources Inc., Caeco Enterprises Inc. and Wilmar Concepts. None of the creditors objected to the proposal, said Peter Gilhuly, Mossimo's attorney.

The Irvine designer secured a $4.5-million loan earlier this month, enabling it to make the payments and stay afloat until the Target deal becomes effective. To secure the financing from CIT Inc., Giannulli personally guaranteed half of the loan, Gilhuly said.

Target Stores said Tuesday that it had never wavered in its commitment to Mossimo, adding that the new line for Target stores is now being designed and should be in stores by the first quarter of next year.

"I guess [the dismissal of the bankruptcy petition] is good news for Mossimo, but whether this had happened or not, Target's plans were not going to change," said spokeswoman Patty Morris, adding that Giannulli is "extremely involved" in the design of the new line.

The settlement offered creditors two options. They could take an immediate cash payment of 35 cents on the dollar--50 cents if the balance was no more than $10,000. Or they could receive 10% now and the full payment over the next four years. Creditor attorney Mark Brutzkus said he did not know what percentage of the creditors are taking the longer-term deal.

Mossimo also agreed to buy back some piece goods from Pacific Apparel and some finished products from Caeco, as well as to pay up to $20,000 in attorneys fees for the three firms that filed the bankruptcy petition.

Creditors were willing to settle for a fraction of what they were owed because Mossimo's operations have been pared back dramatically, Brutzkus said.

"They're not operating as a manufacturing business," he said. "Basically, what we were looking at was the potential value of a trademark, and that's a difficult thing to assess." After the Target deal kicks in, Mossimo will "effectively be a shell for the royalty payments," he added.

The shift has been dramatic for Mossimo, which shot skyward after going public in 1996 but was not able to fully rebound in recent years after it attempted to shift too quickly into more fashionable apparel and away from its beachwear roots.

Mossimo's stock closed Tuesday at $1.69, down 6 cents, in over-the-counter trading. The stock, delisted in May from the New York Stock Exchange, has lost 79% of its value since the beginning of the year.

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