American Apparel files for bankruptcy

American Apparel's deal with its secured lenders would enable the retailer to keep its 130 stores in the United States open.
American Apparel's deal with its secured lenders would enable the retailer to keep its 130 stores in the United States open. PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • American Apparel, once the arbiter of made-in-America cool, filed for bankruptcy protection yesterday, its business crippled by huge debts, a precipitous fall in sales, employee strife and a legal battle with the retailer's ousted founder, Mr Dov Charney.

It is a stark turn of events for a retailer that began as a T-shirt label in 1989 and whose disco pants came to define the edgy, alternative look of the 1990s and early 2000s.

The firm now joins numerous peers that have succumbed to retail competition. Stores like Abercrombie & Fitch and Aeropostale have especially struggled in the face of an onslaught of "fast-fashion" labels and an increasingly fickle demographic more interested in the latest app or gadget than jeans.

American Apparel's Chapter 11 petition, approved by the board, was filed in a federal bankruptcy court in Delaware.

The filing followed a deal struck with most of its secured lenders to reduce the retailer's debt through a process known as a debt-for-equity conversion, where bondholders swap their debt for shares in the company.

The deal, which includes extra financing from the participating bondholders, would enable American Apparel to keep its manufacturing operations in Los Angeles and its 130 stores in the United States open, the company said.

The fresh financing would reduce its debt to US$120 million (S$171 million) from US$311 million, and its annual interest expenses would fall US$24 million, the company said.

"Not having the nuisance lawsuits, not having this massive debt, these are all extremely important things for the company to thrive," CEO Paula Schneider, a veteran retail executive, said on Sunday.

No layoffs were announced in the filing. Its overseas operations are unaffected by the restructuring, which American Apparel expects to complete within six months.

Still, the bankruptcy would wipe out its current shareholders, including Mr Charney, whose stake in the retailer he founded in 1989 was worth about US$8.2 million as of last Friday. It would instead put the creditors in full control, including Standard General, the little-known hedge fund that is also leading the turnaround at RadioShack, which went bankrupt in February.

American Apparel's bankruptcy had become a matter of not if, but when, as it posted quarter after quarter of steep losses. Its sales fell 17 per cent in the second quarter compared with last year, a slump it blamed on a dearth of new styles.

Its losses over the last five years topped US$340 million, and it lost a further US$45 million this year.

The New York Stock Exchange warned last week that American Apparel was at risk of being delisted.


A version of this article appeared in the print edition of The Straits Times on October 06, 2015, with the headline 'American Apparel files for bankruptcy'. Print Edition | Subscribe