Published On: Mon, Oct 5th, 2015

American Apparel files for bankruptcy protection

; Reaches Agreement with Lenders to Significantly Reduce its Debt and Interest Payments

American Apparel CEO Paula Schneider

 

In a statement on Monday, American Apparel said that it had filed for Chapter 11 bankruptcy protection, and that it expected to complete a restructuring within roughly six months.

The company added that the filing with a US court would allow it to implement an agreement with 95% of its secured lenders to implement a pre-arranged financial restructuring.

The restructuring support agreement will substantially reduce the Company’s debt and interest payments through the elimination of over $200 million from about $300 million, while easing its annual interest bill by $20 million.

Paula Schneider, American Apparel’s Chief Executive Officer, commented, “This restructuring will enable American Apparel to become a stronger, more vibrant company. 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 Los Angeles-based retailer has not turned a profit since 2009. The company had a close brush with bankruptcy in 2011, when it warned that it would be forced into Chapter 11 if it could not improve its financial performance quickly.

American Apparel was founded in 1989 by Dov Charney. Mr Charney was fired in December over misconduct claims, and in June it was granted a restraining order against him.

Neil Saunders of retail analysis firm Conlumino told BBC that “Bankruptcy protection is, in our view, the only viable option for American Apparel which is crippled by $311 million of debt and is subject to a number of corporate lawsuits, including those brought by its founder Dov Charney, ” he said.

“Arguably, ” he added, “the big loser will be… Dov Charney, who will not only see his legal proceedings delayed but will also find, along with other shareholders, his holding in the company – currently worth some $8.2 million – wiped out.”

Shortly after Mr Charney’s departure American Apparel has had a number of bid offers, including from private equity. However, the company run a “poison pill” stockholder rights plan to guard against hostile takeovers.

American Apparel completed a merger with Endeavor Acquisition Corp. on December 12, 2007.  Shares at that time touched a high of almost $16, closed down 7 per cent at 11 cents on Friday.

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