Los Angeles-based American Apparel Inc. announced Monday that the U.S. Bankruptcy Court for the District of Delaware has approved its reorganization plan, setting the stage for the company to emerge from Chapter 11 and become a privately held entity.
“This is a new day for the company, and a positive outcome for our customers, vendors and employees,” said CEO Paula Schneider.
“With this milestone behind us, we are now fully focused on executing our turnaround strategy as we continue working to drive revenue across our wholesale, retail and e-commerce businesses; create innovative, new and relevant products; launch new design and merchandising initiatives; and continue to deliver innovative and inclusive award-winning marketing campaigns.”
Once the reorganization plan becomes effective, secured lenders will convert $230 million of secured debt into equity, provide $40 million of exit financing in the form of debt and equity, and supply a $40 million asset-backed loan, according to the company.
“This $80 million of incremental liquidity will support the turnaround plan, and interest expense will decrease by $20 million. Additionally, the company will become privately held,” the statement said.
Earlier this month, American Apparel rejected a $300 million takeover bid from investors who supported the return of ousted founder and CEO Dov Charney.
In a statement issued late Monday, Charney said he was “disappointed” by the reorganization plan and promised to make a comeback.
“This outcome is one that I have been working tirelessly for nearly two years to avoid in an effort to protect value for the company’s various stakeholders,” Charney said.
“Now all stockholders will have their shares and value extinguished. Many of the company’s loyal vendors will recover only cents on the dollar of what the company owes them. And the company’s workers, faced with current management’s inability to generate profits, face a highly uncertain future.”
Charney said he remained proud of his attempt to keep American manufacturing in the United States since relocating the company to Los Angeles in the late 1990’s from South Carolina.
“I was bucking conventional wisdom by trying to preserve American manufacturing jobs and keep apparel manufacturing in the United States,” he said. “Even though everyone else was moving jobs offshore, I was able to build and grow a profitable apparel business by manufacturing domestically.
“At every step along the way people challenged me and said I was crazy for trying. American Apparel was one of the only companies that shattered the sweatshop paradigm by paying fair wages, and did so at scale.”
He added, “By the time American Apparel went public in 2007, it was running the largest operating apparel manufacturing plant in the United States. For these endeavors I remain justifiably proud.”
Charney said the “sad reality” is that American Apparel — which he called the largest garment manufacturer in the United States — “will not survive at this pace and I don’t believe the current management has the talent to bring it back to health.”
American Apparel filed for protection from creditors in October. Known for its made-in-U.S.A. marketing and saucy ad campaigns, the company had posted losses each year since 2010.
Allegations of misconduct against Charney compounded the manufacturer’s problems.
However, Charney was unrepentant Monday.
“At the end of this saga, I, like the many former stockholders, will most likely be left with nothing,” he said. “Despite that, what gives me great optimism are the things I possess that can’t be stolen by a predatory hedge fund — my ideas, values, drive, authenticity, integrity and my passion. To that end I ask that my supporters stay tuned.”
—City News Service