Breaking News: American Apparel Files for Bankruptcy under Chapter 11

Breaking News

American Apparel Files for Bankruptcy under Chapter 11

American Apparel Inc. filed for bankruptcy protection on October 5, 2015. The latest setback for a company that was thrown into chaos after a battle to oust founder Dov Charney. Embattled clothing company says creditors have committed USD 70 million to continue funding its operations. Only on October 2, 2015 the New York Stock Exchange threatened to delist American Apparel.

The Los Angeles-based clothing manufacturer and retail chain has struggled with shrinking sales and an outsize store footprint, as well as litigation tied to Dov Charney, who left the company in December. It filed for chapter 11 in the U.S. Bankruptcy Court in Delaware.

American Apparel plans to restructure its debt, and creditors have committed USD 70 million of new capital to support the reorganization and recapitalization of the business, the company said. It said they would provide about USD 90 million in debtor-in-possession financing.


The company said retail stores, wholesale and U.S. manufacturing operations would continue without interruption and international stores weren’t affected. The company didn’t say whether stores would close.

“The restructuring support agreement, which has been approved by the company’s board of directors, will substantially reduce the company’s debt and interest payments through the elimination of over USD 200 million of its bonds in exchange for equity interests in the reorganized company,” the company said. It also said the agreement would provide the company with access to financing during and after its restructuring. It said the deal would reduce its USD 300 million debt to no more than USD 135 million, and cut its annual interest expense by USD 20 million.

The company, which had about 10000 employees in June, had USD 6.9 million in cash and USD 38.4 million outstanding on its credit facility as of June 30. It has been staving off bankruptcy through a series of cash infusions.

One question is where a bankruptcy filing would leave the hedge fund Standard General, which through a deal with Mr. Charney became the company’s largest shareholder. Shares of American Apparel, which peaked at USD 15.80 in December 2007, finished Friday at 11 cents.

Charney created a following with twentysomethings, who clamoured for his T-shirts and leggings. But a series of allegations of improper behaviour eventually led to his removal from the company. Through a lawyer, Charney has in the past denied the allegations.

Paula Schneider, the new chief executive officer, has been trying to overhaul the company by streamlining product offerings and cutting costs. But those efforts have so far failed to stem a string of losses. In the quarter that ended June 30, American Apparel lost USD 19.4 million as sales fell 17 % to USD 134.4 million.

Problems at the company started well before Mr. Charney’s ouster. American Apparel hit a setback in 2009, when it was forced to lay off more than half its Los Angeles factory staff after a probe by immigration authorities found those workers weren’t authorized to be in the U.S. The company had to replace them and train the new workers, which caused costs to soar and delayed shipments to stores. A year later cotton prices spiked, causing expenses to jump further.

American Apparel wound up borrowing money at high interest rates. Mr. Charney’s exhibitionism—he spoke openly about sex, staged racy photo shoots in the basement of his mansion and sometimes walked his factory floor in his underpants—scared off some lenders altogether, other people familiar with the matter said.


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