American Apparel (asi/35297) has filed once again for Chapter 11 bankruptcy and entered into a proposed agreement to be acquired by Gildan Activewear (asi/56842) for $66 million. Gildan has agreed to acquire American Apparel’s intellectual property rights and wholesale inventory, and has the option of retaining American Apparel’s Los Angeles-based manufacturing and distribution centers. Gildan will not be acquiring American Apparel’s retail stores and assets.

Gildan cited the strength of the American Apparel brand and the stability of the company’s wholesale business in making the acquisition. “It’s an iconic brand,” Garry Bell, vice president of corporate marketing and communications at Gildan, told Counselor. “As far as the promotional products industry is concerned, it has some very strong brand recognition. We recognize that an inherent part of its brand value is that it’s made in the USA. It’s a direction we intend to focus on.”

However, by filing for bankruptcy, American Apparel could potentially be subject to an auction process where the company would be sold to the highest bidder. Under that scenario, Gildan’s offer of $66 million would be considered the initial bid, and the company would be entitled to a breakup fee and certain expense reimbursements if it is outbid by another buyer.

An auction would allow “other buyers who might propose a better deal than Gildan’s [to] submit competing offers, including for the retail business,” wrote Bradley Scher, American Apparel’s chairman of the board, in a letter to company employees. “Ultimately, we will be able to get the best deal done, by requiring various other bidders to compete to buy our iconic, valuable brand.”

“While we’re definitely pleased to be involved in the process and to have submitted that … bid,” Bell said, “the process has to run its course before we can actually say that we successfully bought the American Apparel brand.”

In the company’s bankruptcy filing, Mark Weinsten, chief restructuring officer for American Apparel, wrote “The company faced unfavorable market conditions that were more persistent and widespread than the debtors anticipated. These market conditions were particularly detrimental to retailers.” Weinsten said American Apparel's turnaround strategy “completely failed” as the company reported a 33% decline in year-over-year sales as of September 30. The filing also showed that American Apparel listed assets and liabilities in the range of $100 million to $500 million.

If the acquisition is successful, Gildan has the option to retain any or all of American Apparel’s facilities. Bell told Counselor that Gildan has to evaluate all of the assets before making any real determination whether American Apparel’s manufacturing facilities would stay in Los Angeles.

“We’ve never seen these plants, we’ve never seen the equipment,” Bell said. “Because it’s part of a bankruptcy filing, it’s a little bit of a convoluted process in terms of acquisition. It’s different from just buying a company that’s healthy and running well. One thing we’ve firmly bought into is the notion that a portion of this brand’s value is attributable to the made-in-USA component, and we have every intention of continuing that focus.”

Gildan will not purchase American Apparel’s retail assets, but it will explore the idea of incorporating the company into its Branded Apparel business that sells to consumers through other retailers. Gildan’s consumer brands include Gold Toe, Secret and others. “While we recognize there is an inherent value to the brand even at the consumer level,” Bell said, “it still remains to be seen what the opportunities could be because it really differs from what our core focus and core business model is today.”

In his letter, Scher wrote, “We are confident that this decision is the best strategic move forward, in order to preserve the legacy of the American Apparel brand,” adding that it will be “business as usual” during the bankruptcy and sale process.

Weinsten in the court filing noted that several elements of the company’s turnaround plan were not implemented. He wrote that the company was not able to optimize its retail merchandising process; saw its e-commerce sales figures decline since declaring bankruptcy last year; was able to remedy “chronic quality problems and defects” but had to shut down distribution for a period of time to do so; and that over the last two years “the Company lacked a marketing plan and engaged in ad hoc advertising that lacked focus and did not attract or interest the Company’s core customer base.”

The court filing also indicated that American Apparel has lined up a $30 million loan that will keep the company afloat until it is sold. The company has already initiated liquidation proceedings for all of its foreign operations, which is predominantly in retail.

In an exclusive interview with Counselor last week, Brad Gebhard, American Apparel’s president of global wholesale operations, said the company was looking for a buyer familiar with the apparel industry and managing brands, as well as one that can provide additional capital and collaborate on a strategic plan that will map out American Apparel’s future. “The amount of interest that we’ve had regarding the brand has been very encouraging,” Gebhard said. “And while there is noise in the marketplace about the future of the company, the future is quite bright from our perspective.”

Gebhard told Counselor that for 2016, American Apparel’s wholesale business is up among current customers. In its bankruptcy filing, American Apparel reported that its wholesale business generated approximately $167.42 million in revenue in 2015. It reported North American promotional product revenue of $98.56 million in 2015, making it the 16th largest supplier in the industry.

In February of this year, American Apparel won court approval for a restructuring plan stemming from its first bankruptcy filing. The company is currently owned by Monarch Alternative Capital and other bondholders, who obtained equity in the company for a reduction in debt. During those court proceedings, the supplier fended off a takeover attempt by Founder and former CEO Dov Charney.

Paula Schneider, the CEO who was named to replace Charney, resigned last month and was replaced by Chelsea Grayson, the company’s general counsel and chief administrative officer who has a law background in mergers and acquisitions.

Gildan generated $2.5 billion in consolidated net sales in 2015, up 11.7% from the previous year. The company has made several acquisitions in recent years, and in May it acquired Alstyle Apparel (asi/34817), formerly a division of Top 40 supplier Ennis (asi/52493), for a total of $110 million in cash.