Top 40 supplier Delta Apparel (asi/49172) has filed for Chapter 11 bankruptcy and has agreed to sell its Salt Life brand for a reported $28 million to Delaware-incorporated firm FCM Saltwater Holdings, according to a new filing with the Securities and Exchange Commission (SEC).

A run of disastrous financial results, executive departures and the recent appointment of a restructuring specialist had the writing on the wall that the publicly traded Duluth, GA-based apparel manufacturer was heading toward bankruptcy.

Chapter 11 is a form of bankruptcy that involves a court-supervised “reorganization” of a debtor’s assets and liabilities. It allows a company to operate as it goes through bankruptcy, which is what Delta Apparel plans to do, at least for a time, according to the SEC filing.

“The debtors will continue to operate their businesses as a debtor-in-possession and pursue a structured sale of their assets pursuant to one or more competitive bidding processes or other strategic arrangements involving such assets,” the SEC document said.

Delta Apparel noted that it’s going to ask the bankruptcy court to approve borrowing arrangements with entities that include Wells Fargo Bank -- arrangements that will allow the company to obtain the cash flow needed to operate during the Chapter 11 process. The supplier has been out of compliance with a covenant within its revolving credit facility, and has been unable to get the money required  to buy essential materials, like yarn, to fund production.

Prior to the bankruptcy filing, Delta Apparel said it agreed to sell certain assets related to the marketing, sourcing, licensing and selling of its sand-and-surf lifestyle brand Salt Life to FCM Saltwater Holdings. The total purchase price, to be paid in cash, is subject to adjustment, but is currently agreed to as $28.03 million. Still, the deal needs court approval.

The Salt Life transaction will be conducted through a bankruptcy court-supervised process pursuant to court-approved bidding procedures and is subject to the receipt of higher or better offers from competing bidders at an auction, as well as approval of the sale by the bankruptcy court.

“Subject to bankruptcy court approval, in the event that the buyer is not the successful bidder at the auction, the buyer may be entitled to a break-up fee equal to approximately 3% of the purchase price, plus reimbursement of expenses up to 1.5% of the purchase price,” the SEC filing noted.

After a run of dismal financial results, Robert Humphreys is out as CEO of Top 40 supplier Delta Apparel, which has hired a restructuring specialist.https://t.co/bqgNiJ96nJ

— Chris Ruvo (@ChrisR_ASI) May 23, 2024

Before the bankruptcy, Delta Apparel had been sustaining losses as its sales plummeted. Former CEO Robert W. Humphreys was forced to resign in May and other executives and board members departed in weeks that followed. The latest SEC filing indicated that Chief Accounting Officer Nancy P. Bubanich resigned June 27, followed by board directors Glenda E. Hood and Sonya E. Medina on June 28 and June 30 respectively.

In June, Delta Apparel shuttered its DTG2Go division. The business unit had focused on print-on-demand solutions in the direct-to-garment printing medium. The closure occurred shortly after the suspension of operations at a Delta Apparel manufacturing facility in Honduras.

Trading on Delta Apparel’s stock has been suspended. The company anticipates that its shares will be delisted from the NYSE American due to the Chapter 11 filing. “The company expects that holders of shares of the company’s common stock will experience a complete or significant loss on their investment, depending on the outcome of the Chapter 11 cases,” the SEC filing read.

In May, the firm reported that its fiscal half-year total company revenue was about $158.9 million – a 27% year-over-year decrease. For the six-month period, Delta Apparel suffered a loss of about $44.8 million, or -$6.38 per share.

In the 2023 fiscal year, which ended Sept. 30, Delta Apparel had a $33.2 million annual loss and sales fell 14%. Based on estimated 2022 North American promotional products revenue of $49.6 million, Delta Apparel ranked 37^th on Counselor’s most recent list of the largest suppliers in the industry. The new list is due out this summer.