American Apparel files for bankruptcy protection

Los Angeles-based American Apparel has filed for Chapter 11 bankruptcy protection after it reached a restructuring deal with 95% of its secured lenders to reduce its debts.

Under the restructuring support agreement, American Apparel's secured lenders will provide around $90m in debtor-in-possession financing. These supporting creditors have committed $70m of new capital to support the reorganisation and recapitalisation of the business.

American Apparel, which manufactures all of its clothes in the US, said such financing will be more than sufficient to fund its ongoing operations and pave the way for a successful reorganisation. As a result, the company’s debt will be cut from $300m to no more than $135m, and annual interest expense will decrease by $20m.

The company has filed with the Bankruptcy Court and expects to obtain approval for various customary motions for immediate relief 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.

It said it will pay all of its suppliers in full under normal terms for goods and services provided on or after the filing date of 5 October. In addition, American Apparel said its international operations are not affected by the reorganisation in the US.

Chief executive officer Paula Schneider said: “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."