American Apparel Files For Chapter 11 Bankruptcy; Stores To Remain Open

After months of declining financial stability and an ongoing legal tussle with former CEO and Founder Dov Charney, American Apparel has filed for Chapter 11 bankruptcy protection in Delaware. The filing is awaiting court approval.

In accordance with the filing, American Apparel has reached a restructuring support agreement with 95% of its secured lenders to implement an internal financial restructuring plan. The retailer will reduce debt and interest payments through a process known as a debt-for-equity conversion, where bondholders swap their debt for shares in the company. To help fund the restructuring, lenders will provide a $90 million bankruptcy loan, in addition to $70 million in new capital.

With the restructuring, American Apparel will reduce its $300 million debt to no more than $135 million, and its annual interest expense will be cut by $20 million.


The reorganization will enable American Apparel to keep its remaining 130 U.S. stores open for business, while its factories will continue to remain operational, according to a company statement. No layoffs were announced in the filing.

The retailer’s international operations are unaffected by the restructuring, which American Apparel expects to complete within six months.

In August, American Apparel had reported that Q2 2015 sales fell 17.2%, continuing a downward trend for the retailer that hasn’t had an annual profit since 2009. The New York Stock Exchange warned American Apparel that the company was at risk of being delisted from the exchange, with the retailer’s shares closing at just 11.2 cents on Oct. 2.

Upon firing Charney for alleged misconduct in December 2014, the retailer hired Paula Schneider as CEO to helm the retailer’s massive turnaround effort.

“This restructuring will enable American Apparel to become a stronger, more vibrant company,” Schneider said in a statement. “By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward.”



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