WILMINGTON, DEL. – American Apparel Inc., the made-in-the-U.S.A. clothing chain known for provocative marketing and boardroom drama, filed for bankruptcy protection after years of losses and a feud with controversial founder Dov Charney.
As part of a prearranged Chapter 11 restructuring, the Los Angeles-based company will reorganize its debts, which have ballooned to levels exceeding its assets. More than $200 million of bonds will be exchanged for stock in the reorganized company, according to a statement on Monday. American Apparel will remain in business during the process.
Filing for bankruptcy is a "difficult decision that gives American Apparel the opportunity to rebuild the business," said Bryan Roberts, an analyst with Kantar Retail. "Quite a few U.S. retailers have gone down this route and come out the other side."
The move follows a clash between Charney and the board that led to his ouster last year for alleged misconduct — claims he says are baseless. But American Apparel's financial woes stretch back longer. The chain has posted deficits every year since 2010. Chronic losses strained the balance sheet to the point that as of end of June, American Apparel had $161 million more liabilities than assets, meaning the company had a negative book value.
As part of the bankruptcy agreement, American Apparel will have access to financing after the restructuring, according to the statement. The debt reorganization, which may last about six months, is designed to provide relief.
Under the accord, creditors will supply enough financing and new capital to fund ongoing operations and reduce American Apparel's debt to no more than $135 million from $300 million.
That will help lower annual interest expenses by $20 million, the company said. The plan was supported by 95 percent of secured lenders.