Distressed private-equity investor Versa Capital is considering making a play for Aé ropostale Inc., according to the teen apparel retailer.

In papers filed Friday in Aé ropostale's bankruptcy case, the retailer said it has been in discussions with Versa regarding a possible stalking horse, or lead, bid for the company at a coming auction.

While nothing is set in stone, court papers show a potential Versa bid could include a cash payment for Aé ropostale's inventory, the assumption of more than 500 existing and modified store leases, and "continued employment for thousands of store-level and corporate employees."

An Aé ropostale spokeswoman declined to comment Monday, as did a spokeswoman for Versa.

A condition of Versa's bid, however, is a demand that Aé ropostale reimburse its sale-related expenses, up to $500,000. The U.S. Bankruptcy Court in Manhattan is set to consider the requested reimbursement at a hearing Monday afternoon.

Versa, a Philadelphia-based investment firm, is experienced in the world of teen retail. Last spring, it acquired the Wet Seal chain out of bankruptcy for $7.5 million in cash.

Aé ropostale sought chapter 11 protection in early May. It then moved to shut about 150 of its 800 stores. While the company hoped to reorganize around the survivors, it has also put the chain up for sale in a bankruptcy court-overseen sale process.

Bids for Aé ropostale are due Aug. 18. If needed, an auction will be held Aug. 22, with the winning bid set for court review at an Aug. 24 hearing.

Aé ropostale had sought a longer sale timeline to capture any benefits from back-to-school shopping, but pressure from lenders resulted in the fast-approaching auction. The "compressed timeline" of the sale is what has prompted Versa's demand for the expense reimbursement, Aé ropostale said in court papers.

"Versa has advised the debtors it will not make the investment of time and expenses necessary to pursue the transaction without payment of the expense reimbursement," Aé ropostale said in Friday's court filing.

Tensions between Aé ropostale and private-equity firm Sycamore Partners, which backs Aé ropostale lender Aero Investors LLC, have been present throughout the retailer's chapter 11 case. The two blame each other for Aé ropostale's financial difficulties.

Aero Investors, as well as its affiliate, Aé ropostale supplier MGF Sourcing Holdings, filed an objection to the proposed Versa expense reimbursement saying there isn't proof that the up to $500,000 payment is warranted.

Write to Lillian Rizzo at Lillian.Rizzo@wsj.com

(END) Dow Jones Newswires

August 08, 2016 13:15 ET (17:15 GMT)

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