Los Angeles-based retailer American Apparel has filed for bankruptcy under Chapter 11, and plans to recapitalize through a consensual pre-arranged reorganization plan in hopes to significantly reduce its debt and interest payments. The clothing maker has seen troubled times in recent months, with numerous store closings and the threat of several lawsuits from ousted CEO and company founder Dov Charney. As of Friday, shares of the company had closed at a mere 11 cents.
The restructuring support agreement, which has been approved by American Apparel’s board of directors, will substantially reduce the company’s debt and interest payments through the elimination of over $200 million of its bonds in exchange for equity interests in the reorganized company, and provide the company with access to financing during and after its restructuring, which will allow both its retail stores and manufacturing plants to stay open. The company expects to complete the restructuring within six months.
Paula Schneider, American Apparel’s CEO, commented in a statement: “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.”
Under the restructuring support agreement, American Apparel’s secured lenders, which include Standard General and Goldman Sachs Asset Management, will provide approximately $90 million in debtor-in-possession (DIP) financing. These supporting creditors have committed $70 million of new capital to support the reorganization and recapitalization of the business. As a result of the reorganization, American Apparel’s debt will be reduced from $300 million to no more than $135 million, and annual interest expense will decrease by $20 million.
Schneider added, “This process will ultimately benefit our employees, suppliers, customers and valued partners. We are taking this step to keep jobs in the U.S.A. and preserve the ideals for which the company stands.”