American Apparel Files For Bankruptcy

American Apparel Store front
An American Apparel store.
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Embattled teen-and-young adult fashion company American Apparel Inc. has taken another step to calm its financial and legal struggles.

The Los Angeles-based firm has sought bankruptcy relief, filing for Chapter 11 in California courts on Sunday.

American Apparel said it has already reached an agreement with 95 percent of its lenders to implement the restructuring plan.

The company, in a statement, promised that its retail stores, wholesale and U.S. manufacturing operations will continue without interruption and that its international businesses should also remain unaffected as it seeks to “transform” and “revitalize” the brand.

The restructuring agreement, American Apparel said, 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 also “provide the company with access to financing during and after its restructuring.”

“This restructuring will enable American Apparel to become a stronger, more vibrant company,” Paula Schneider, American Apparel’s CEO, said in a release. “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.”

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, the company said in a statement.

The retailer has been embroiled in its share of litigation in recent months, including 20-plus lawsuits and legal sanctions filed against the company by ousted founder and ex-CEO Dov Charney.

Just three months prior to its bankruptcy filing, in July, American Apparel announced a restructuring plan that involved cost cutting and layoffs.

But experts say it was only a matter of time before the retailer would have to seek bankruptcy relief — an avenue that would, at least temporarily, halt all of the legal actions pending against the firm.

In July, American Apparel’s management had said they hoped to stabilize the company financially by “maximizing retail-store performance and revamping its product merchandise assortment” — but suggested they were unsure whether the firm would have enough funds to last even a full year.

“This [bankruptcy and restructuring] process will ultimately benefit our employees, suppliers, customers and valued partners. American Apparel is not only an iconic clothing brand but also the largest apparel manufacturer in North America, and we are taking this step to keep jobs in the U.S.A. and preserve the ideals for which the company stands,” Schneider said in the Oct. 5 press release.

The restructuring plan is still subject to approval by the bankruptcy court.