American Apparel Inc. has decided to file for bankruptcy protection. However, unlike other companies, American Apparel won't be shuttering its entire operation. Instead, if things go as planned, the company may see a resurgence.
Los Angeles-based American Apparel, well-known for the risqué advertising and controversial founder, was struggling for some time as a result of dwindling sales. The company had recently hinted at tough times ahead and, sure enough, seems to have taken the necessary precautionary steps to avoid a financial meltdown.
American Apparel was in the final stages of filing for bankruptcy protection. In fact, the company completed the necessary procedures today morning, reported MSN. However, the company's management has already reached a "restructuring support agreement with 95 percent of its secured lenders," confirmed the company's chief executive, Paula Schneider.
"This restructuring will enable American Apparel to become a stronger, more vibrant company."
American Apparel hasn't enjoyed a profitable quarter since 2009. By filing for bankruptcy protection, the company has joined a growing number of U.S. retailers who have been fighting a difficult and seemingly unwinnable war against the rapidly changing buying patterns and intense competition that has nearly eroded all of the profits. Companies in the same boat as American Apparel include Wet Seal, Cache Inc, Deb Shops, Body Central Corp., and others. All of these companies have filed for bankruptcy in this past year.
The company is the only clothing retailer that completely supported the ideology of 'Made in America' and had been still manufacturing in the United States until the bankruptcy filing. Interestingly, the company confirmed that its stores and manufacturing operations would continue to operate normally. American Apparel has managed to pull a rabbit out of the hat by expertly securing a restructuring deal, which will allow it to keep making apparel and accessories, though it is not clear how it will boost sales and try and earn some profit to justify its existence.
Though the company listed assets and liabilities of between $100 million and $500 million in its bankruptcy filing, it confirmed it has managed to substantially reduce what it owes. American Apparel said it expects to cut its debt to $135 million from $300 million through the elimination of more than $200 million of bonds in exchange for equity, reported Yahoo News.
American Apparel has been burning money owing to steadily dwindling sales and an outsize store footprint, reported Fox News. However, a major chunk of its money was whiled away in multiple litigations tied to Dov Charney, who was the company's CEO till December. Charney was fired for alleged misconduct, including misusing company funds. He allegedly failed to stop a subordinate from creating blog posts that defamed former employees, which needless to say earned him the ire of the American Apparel staff. For quite a few years, the company had been shielding him from highly publicized and expensive lawsuits that accused Charney of engaging in sexual harassment.
When the time came for financial restructuring, Dov Charney's stake in American Apparel, along with that of a few others, will be completely wiped off, indicated experts.
How is American Apparel going to stay afloat? The company's shares were at 11.2 cents on Friday's closing. The company shared it might not have enough capital to sustain operations even for a year. As on Friday, American Apparel was valued at $20.5 million.
However, the company's secured lenders have agreed to extend about $90 million in debtor-in-possession financing. Moreover, these lenders have committed a total of $70 million in fresh capital. The restructuring may take about six months, giving American Apparel some breathing time to figure out whether to go ahead with the bankruptcy filing or withdraw it.
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