American Apparel Files For Bankruptcy

Troubled teen apparel retailer American Apparel Inc filed for bankruptcy protection on Monday, Reuters reported.

American Apparel said the restructuring agreement, which has been approved by its directors, will “substantially” cut its debt and interest payments by eliminating more than $200 million of its bonds in exchange for equity interests in the company.

“By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy”, Chief Executive Paula Schneider said in a statement.

American Apparel, which manufactures in its downtown Los Angeles factory and also operates a chain of almost 230 stores, said it expects to complete the restructuring process in the next six months.

The company, which had about 10,000 employees in June, had $6.9 million in cash and $38.4 million outstanding on its credit facility as of June 30.

A few $90 million in debtor-in-possession financing will be provided with $70 million going to the company’s restructure. It has been staving off bankruptcy through a series of cash infusions.

The move is far from a surprise: American Apparel said in August it had “substantial doubt” that it would stay in business.

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. American Apparel lost more than $340 over the last five years, plus an additional $45 million this year. As a bonus, the bankruptcy proceedings will pause the various lawsuits against the company, many of which involve Charney.

The Los Angeles-based retailer, known for making its products in the USA, has not turned a profit since 2009.

Charney founded American Apparel in 1998, building an operation that was famous for its sex-infused advertising campaigns and unorthodox business practices.