Daily Management Review

American Apparel Files for Bankruptcy Protection to Finance Debts


American Apparel Files for Bankruptcy Protection to Finance Debts
After having reached a restructuring deal with 95% of its secured lenders to reduce its debts, Los Angeles-based American Apparel has filed for Chapter 11 bankruptcy protection.
Around $90m in debtor-in-possession financing would be provided by American Apparel's secured lenders under the restructuring support agreement.
$70 million of new capital to support the reorganisation and recapitalisation of the business of American Apparel have been committed by the supporting creditors.
The financing that would be provided for the company would be more than sufficient to fund its ongoing operations and pave the way for a successful reorganization, says American Apparel which manufactures all of its clothes in the US. This financial restructuring would help reduce the company’s debt from $300 million to no more than $135 million and annual interest expense will decrease by $20 million.
In order to allow it to make certain necessary payments to employees and suppliers that will permit it to continue operating without interruption during the initial phase of the restructuring, the company is expecting an early approval for various customary motions for immediate relief from the Bankruptcy Court where is has filed an appeal.
All the suppliers of the company would be paid in full under normal terms for goods and services provided on or after the filing date of 5 October, the company said. The international operations of the company would however be not affected by the reorganization, the company informed.
 “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," said the chief executive officer of the company Paula Schneider.
American Apparel has filed for Chapter 11 bankruptcy protection nearly a year after the ouster of CEO Dov Charney.
The investors of the LA based clothing retailer were warned in August that the company had “substantial doubt” it could remain in business and investors could incur big losses and thus the news does not come as any surprise. The company reported a loss of $19.4 million in the latest quarter.
The company expects that it would take around six months to restructure its debts by declaring bankruptcy, said an American Apparel communiqué. The 200 plus retail stores of the company would continue to function as normal and without any interruptions even during the reorganization process.
 “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,” said CEO Paula Schneider in a statement.
In the reorganized company, over $200 million in debt would be converted into equity stakes by American Apparel.
(Sources: www.digitallook.com & www.forbes.com) 

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