Trendy L.A.-based clothing manufacturer and retailer American Apparel, which fired its founder and CEO last year amid allegations of personal misconduct and misuse of company funds and which has been facing serious financial challenges, says it is filing for Chapter 11 bankruptcy protection Monday after striking a deal with 95 percent of its secured lenders.
“This reorganization will enable the company to implement a comprehensive transformation strategy to revitalize the business and brand, while keeping its production and operations in the U.S.,” the company said in a statement. “Throughout the implementation of this process, American Apparel will continue to operate its business without interruption to customers, employees and vendors.”
American Apparel said the restructuring agreement will cut its debt and interest payments “substantially” by eliminating more than $200 million of its bonds in exchange for equity interests in the company.
Additionally, the company expects $90 million of debtor-in-possession financing, plus an additional $70 million to support the restructuring plan, reducing the company’s debt from $300 million to $135 million or less, American Apparel said. Annual interest payments will be reduced by $20 million.
“This restructuring will enable American Apparel to become a stronger, more vibrant company,” said American Apparel Chief Executive Officer Paula Schneider.
“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.”
The company’s board fired founder Dov Charney last year after an investigation found evidence of allegedly inappropriate behavior with employees and misuse of company funds.
Sales and revenues have continued to slip. American Apparel’s net losses have totaled nearly $384 million over the last 5 1/2 years, and the company has been strapped for cash, holding only $11.2 million in cash as of Aug. 11.
Based in downtown Los Angeles, American Apparel describes itself as a vertically integrated manufacturer, distributor, and retailer of branded apparel. As of Sept. 30, 2015, it had approximately 9,000 employees and 227 retail stores in 19 countries, including the United States and Canada.
The company also operates a global e-commerce site that serves more than 50 countries worldwide, and a wholesale business that supplies high-quality T- shirts and other casual wear to distributors and screen printers.
The company statement said that if the reorganization plan is approved by a bankruptcy judge, “the company’s existing common stock will be extinguished and the holders of the common stock will not receive any consideration, consistent with legal priorities.”
American Apparel said it has set up a toll-free reorganization hotline, accessible to U.S. callers at 1 (877) 940-7795 and international callers at 1 (614) 779-0360. Customers, employees, or other interested parties who may have questions related to the reorganization can call the hotline for more information, it said.
—City News Service