American Apparel Restructuring
American Apparel filed for bankruptcy protection last week. The company said its stores will not be affected by the filing, and no store closings or layoffs were announced. In a letter to customers, the struggling company compared it’s restructuring to that of businesses like American Airlines and Bloomingdale’s. It was promised that “American Apparel will emerge as a stronger, more vibrant company.”
As of September 30, 2015, American Apparel operated 227 retail stores in 19 countries. The California-based retailer, which has not reported a profit since 2009, has been struggling with large debt, sluggish sales, and a legal battle with its controversial and recently ousted Founder/CEO, Dov Charney. The bankruptcy would wipe out American Apparel’s current shareholders including Dov Charney, whose stake in the company was worth about $8.2 million as of October 1st, according to the New York Times.
American Apparel struck a deal with its lenders that would reduce the retailer’s debt to $135 million from $300 million through debt-for-equity conversion in which bondholders would swap their debt for shares in the company. The deal, which still requires approval by bankruptcy court, would allow American Apparel to keep its manufacturing operations located in Los Angeles and its 130 U.S. stores open. American Apparel is the largest apparel manufacturer in North America. The retailer’s international operations are unaffected by the restructuring.
In January, American Apparel named veteran retailer Paula Schneider as CEO. She launched an ambitious effort to turn around the company, but her effort was hindered by the company’s debt. In an interview with the New York Times, Paula Schneider indicated that the bankruptcy would give the company a fresh start. The bankruptcy would also likely delay the various lawsuits filed by Mr. Charney against the company.